Full text of Federal Reserve Bank of New York Circulars : 10392. Funds Transfers Through Fedwire

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 10392 ~|
October 18, 1990

FUNDS TRANSFERS THROUGH FEDW IRE
Conform ing Subpart B of Regulation J to UCC Article 4A
(Effective January 1, 1991)
To All Depository Institutions in the Second
Federal Reserve District, and Others Concerned:

T h e fo llo w in g s ta te m e n t h as b e e n issu e d b y th e B o a rd o f G o v e rn o rs o f th e F e d e ra l R e se rv e
S y stem :

The Federal Reserve Board has approved a comprehensive revision to Subpart B of Regulation J,
governing funds transfers through Fedwire. The revision will make Regulation J consistent with the new
Article 4A of the Uniform Commercial Code, which governs the rights, responsibilities, and liabilities
of parties to wholesale funds transfers.
The revision to Subpart B becomes effective January 1, 1991, and will:
• provide a more comprehensive set of rules for funds transfers involving Federal Reserve Banks
than is currently provided by Subpart B;
• make Subpart B consistent with state laws applicable to funds transfers as states adopt Article
4A; and
• help to ensure that, subject to their central banking responsibilities, Federal Reserve Banks
compete on an equitable basis with private-sector providers of funds-transfer services.
E n c lo s e d — fo r d e p o s ito ry in stitu tio n s — is an e x c e rp t fro m th e

Federal Register o f

O c to b e r

5 , c o n ta in in g th e tex t o f th e B o a rd ’s re v isio n o f S u b p a rt B . S in g le c o p ie s m ay b e o b ta in e d at th is
B a n k (33 L ib e rty S tre e t) in th e Issu e s D iv isio n a re a o n th e first floor. Q u e s tio n s m ay b e d ire c te d
to A n d re w H e ik a u s, M a n a g e r o f o u r F u n d s T ra n sfe r D e p a rtm e n t (Tel. No. 2 1 2 -7 2 0 -5 5 6 1 ).




E . G erald C o r rig an ,

President.

)
Friday
October 5, 1990
Vol. 55, No. 194
Pp. 40791-40814

Regulation J; Docket No.R-0697
Revision of Subpart B

For this Regulation to be complete, retain:
1) Regulation J Pamphlet, effective September 1, 1988
2) This slip sheet.
Enc. Cir. No. 10392]




FEDERAL RESERVE SYSTEM
12CFR Part 210
[Regulation J; Docket No. R-0697]

Funds Transfers Through Fedwire

Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
agency:

The Board has adapted a
comprehensive revision of Subpart B to
Regulation Jto make itconsistent with
the new Article 4A of the Uniform
Commercial Code, Funds Transfers. The
revision sets out the rules governing
funds transfers through Fedwire, as well
as Commentary to the regulation that
constitutes a Board interpretation of the
regulation.
EFFECTIVE DATE: January 1,1991.
sum m ary;

FOR FJRTHER INFORMATION CONTACT:

Oliver Ireland, Associate General
Counsel (202/452-3625) or Colleen
McCall, StaffAttorney, (202/452-6406),
Legal Division: or Louise L. Roseman,
Assistant Director, Division of Federal
Reserve Bank Operations (202/4523374); for the hearing impaired only:
Telecommunications Device for the
Deaf, Eamestine Hill or Dorothea
Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION: For
many years, the Regulation Jprovisions
on fuuds transfers handled by Federal
Reserve Banks constituted the only
codified body oflaw applicable to these
payments. Although subpart B of
R e g u la tio n Jspecified the rules
applicable to the funds transfers
handled by Federal Reserve Banks,
there were no codified rules for the
wholesale funds transfers handled by
other banks, or by private funds-transfer
systems.1*Further, Regulation Jdid not
provide comprehensive rales for the
relationship between banks and their
customers that were parties to fund
transfers handled by Federal Reserve
Banks. Although there was no
comprehensive body of statutory or
regulatory law on funds transfers other
than consumer transactions (and only
limited case law has developed in this
area), the number and dollar volume of
funds transfers in the United States has
grown to very high levels.
Approximately 400.000 funds transfers
with a total value ofmore than $1.5
trillion are processed in the United
1 In 1987, Congress adopted the Electronic Fund
Transfer Act to establish consumer rights in
electronic funds transfers. 15 U.S.C. 1803 et seq.
This Act does not apply, however, to that portion of
a funds transfer sent through Fedwire. 15 U.S.C.
lfs93a(6)(B).




States each day through the Fedwire
system and the Clearing House
Interbank Payments System (CHIPS).
To provide a legal framework for
these transactions, several years ago the
National Conference of Commissioners
on Uniform State Laws, the sponsoring
organization for the Uniform
Commercial Code and other uniform
state laws, undertook to develop a new
Article 4A to the Uniform Commercial
Code (UCC) on funds transfers. This
project was completed in 1989 with the
assistance of representatives of the
banking and the corporate user
community, as well as the Federal
Reserve System. Article 4A has already
been adopted in twelve states—
California, Colorado, Connecticut
Illinois, Kansas, Louisiana, Minnesota,
New York, Oklahoma, Utah, Virginia,
and West Virginia. Article 4A will
become effective in many of these states
by January 1991 and will likely be
adopted in most, ifnot all,remaining
states within the next few years.
Article 4A provides comprehensive
rules governing the rights and
responsibilities of the parties to
wholesale funds transfers.2These rights
and responsibilities include:
responsibility for unauthorized,
erroneous, or erroneously executed
funds transfers, risks of loss associated
with the failure of a bank handling a
funds transfer, responsibilities to pay for
and the right to receive payment for
funds transfers, and the effect of
payment by funds transfer on any
contractual obligation between an
originator and a beneficiary underlying
a funds transfer.
Although many of the concepts
embodied in the current version of
subpart B of Regulation Jare similar to
those embodied in Article 4A. a number
of the subpart B provisions are
inconsistent with the structure of Article
4A and the terminology of subpart B and
Article 4A differ substantially.
Accordingly, in June 1990, the Board
published for comment a comprehensive
revision of subpart B to incorporate
Article 4A and to define further its
requirements applicable to Federal
Reserve Banks. The Board received 32
comments on the proposal. The Board
has considered the comments and
revised the proposed rule as further
described below. In considering
modifications to the regulation, the
Board has sought to ensure (1) the

continued ability of the Federal Reserve
Banks to effectively carry out their
central banking responsibilities, (2) the
consistency of the revised regulation
with the Federal Reserve’s role to
promote the integrity and efficiency of
the payments system, and (3) the
consistency of the revised regulation
with the tests established in the Board’s
competitive impact analysis. The Board
believes that revised subpart B meets
these objectives.3
The Board has revised subpart B of
Regulation Jsubstantially as proposed
in June so as to apply Article 4A to
funds transfers handled by Federal
Reserve Banks, subject to a limited
number of modifications and
clarifications.4 This revision to subpart
B: (1) Provides a more comprehensive
set ofrules forfunds transfers involving
Federal Reserve Banks than iscurrently
provided by subpart B; (2) makes
subpart B consistent with state laws
applicable to funds transfers as states
adopt Article 4A; and (3) helps to ensure
that, subject to their central banking
responsibilities, Federal Reserve Banks
compete on an equitable basis with
private-sector providers of fundstransfer services.
Revised subpart B incorporates
Article 4A. In the event of an
inconsistency between the provisions o?
the sections of subpart B and the
provisions of Article 4A, the provisions
of the sections of subpart B will prevail.
Article 4A will apply to transactions
involving Federal Reserve Banks even i:
the state in which the Federal Reserve
Bank is located had not yet adopted
Article 4A. The Board believes that this
incorporation isnecessary to ensure the
the law applicable to funds transfers
involving Federal Reserve Banks is
uniform for allFedwire funds transfers,
regardless of the location of the banks
involved in the funds transfer.
Consistent with the provisions of
Article 4A concerning the choice of lav%
by rales of private funds-transfer
systems (see section 4A-507), subpart I

* It could be argued that adoption of the rules
governing Fedwire as a federal regulation, rather
than as a funds-transfer system rule, in itself had
adverse competitive effect due to the supremacy i
federal law over funds-transfer system rules. The
Board believes that adoption of these rules as
federal law is necessary, in light of the national
scope of the Fedwire system.
4 Under section 4A-1Q7, Federal Reserve
regulations and operating circulars supersede
inconsistent provisions of Article 4A In addition,
under the Expedited Funds Availability A ct tha
Board has broad authority to issue regulations
* Transactions covered by Article 4A Include wire concerning the payments system. Nevertheless, ii
transfers sent through Fedwire or CHIPS, book
developing subpart B. the Board has generally
transfers, and automated clearing house (ACH)
varied Article 4A only to the extent that the law
credit transfers, other than transfers subject to the
could be varied by a private funds-transfer syste
electronic fund Transfer Act.
rule.

2

will apply to all banks sending payment Act In such a case, by its terms, Article
orders to or receiving payment orders
4A would not be applicable to any
from Federal Reserve Banks. In addition, portion of the funds transfer, including
itwill apply to any remote parties to
the Fedwire portion. In order to ensure
these funds transfers that receive notice that the rules for all funds transfers
that the funds transfer might go through through Fedwire are consistent, the final
Fedwire and that subpart B applies to
rule provides that subpart B, including
such funds transfers (see section 4AArticle 4A. applies to all funds transfers
507(c)). In order to encourage banks to through Fedwire, even ifa portion of the
provide these notices to their customers, funds transfer isgoverned by the
the proposal included a warranty by the Electronic Fund Transfer Act The
portion of the funds transfer that is
banks sending or receiving funds
governed by the Electronic Fund
transfers through Fedwire that all
remote parties to the transfer have been Transfer Act would not be governed by
subpart B.
provided such a notice. This warranty
Second. Article 4A specifies the time
would have extended the Article 4A
limitation on consequential damages to that a beneficiary’s bank must provide
the proceeds ofa funds transfer to the
claims against Federal Reserve Banks
beneficiary on the payment date. The
by originators and beneficiaries of
transfers through Fedwire (see section Expedited Funds Availability Act (12
U.S.C. 4001 et seq.) and Regulation CC
4A-305(d)}, and would have helped to
provide end-to-end coverage for funds require banks to make electronic
payments available for withdrawal on
transfers through Fedwire so that the
the business day after the banking day
scheme of rights and liabilities under
on which the bank has received
Article 4A operated effectively. These
payment in actually and finally
benefits applied primarily to the
collected funds and information on the
transition period before Article 4A is
account and amount to be credited [see
adopted in allstates. The Board had
been advised that private funds-transfer 12 CFR 229.10(b)). Although Article 4A
systems were planning torequire similar would in some cases provide for
prompter availability of funds transfers
warranties or employ other similar
than would the Expedited Funds
means to ensure that originators and
beneficiaries are notified of the use of Availability Act and Regulation CC, the
Board believes the Expedited Funds
their funds-transfer system.
Availability Act and Regulation CC
Commenters argued that private
banks would be unable to obtain similar should control subpart B because the
express provisions of the Expedited
warranties by agreement and that the
Funds Availability Act indicate clearer
warranties would expose them to
liabilities from remote parties that they expression of Congressional intent on
the issue of availability of funds.8
would be unable to control. Further,
In addition to these issues, the final
although the National Automated
Clearing House Association (NACHA) rule revising subpart B contains a
has attempted to achieve a result similar number of technical changes to the
to the proposed warranty by requiring in proposal that are described in detail
below. The Board believes that these
itsrules that itsparticipants give such
issues are addressed in a manner that is
notices, CHIPS has not The Board
believes that the burden and difficulties consistent with provisions of Article 4A,
and therefore do net represent a
cited by the commenters outweigh the
benefits of the warranties, which were competitive inequity between Federal
designed primarily to address transition Reserve Banks and private-sector banks
and, at the same time, do not adversely
oroblems. Accordingly, the Board has
affect the Federal Reserve Banks’
deleted the warranty provisions from
abilities to carry out their central
he final rule.
banking responsibilities, including
In addition to the warranty issue, in
eviewing the proposal, the Board noted providing payment services to troubled
banks und administering the discount
wo other issues concerning the
ippropriate scope of subpart B. First, by window.
ts terms, Article 4A does not apply to Comment Summary
unds transfers any part of which is
ubject to the Electronic Fund Transfer
The Board received 32 comments on*
ict [see section 4A-108). The Electronic
und Transfer Act does not apply to
* The Expedited Funds Availability A ct provides
inds transfers sent through Fedwire
that a state law that requires prompter availability
•ee 15 U.S.C. 1693a(6)(B)J. One portion of funds can supersede the federal law only if the
fa funds transfer could be sent through state law was in effect oo September 1.1989. (12
U.S.C. 4007.) Article 4A would not supersede the
edwire and another portion could be
Expedited Funds Availability Act in any sta te
ansmitted in a way that made it
because it wae not in effect in any sta te on
lbject to the Electronic Fund Transfer September 1.1*09.




3

the proposed revisions to subpart B of
Regulation J.Commenters comprised
Commercial Banka.................. .............. .............
B a n k H o l d i n g C o m p a n i e s ............ ..... .....................................

10
8

T r a d e A s s o c i a t i o n s ............................ „ ........... .. .......- ................

6

F e d e r a l R e s e r v e B a n k s .............................

3

C * e a n n g H o u s e __________________

1

S a v i n g s a n d L o a n I n s t i t u t i o n _________________________

1

C o r p o r a t i o n .......... ............

1

F o r e i g n C e n t r a l B a n k .......... .. ............................................ .......

1

U S . B r a n c h o f a F o r e i g n B a n k ......... ...............................

Total...._......... .............

1

32

While all of the commenters generally
favored the proposal, some commenters
raised various concerns with specific
aspects of the proposed revisions. The
final amendments and substantive
comments are summarized below:
Supplementary Information. One
commenter suggested that the Board
was inconsistent in its statement in
footnote 4 that the Board isnot relying
''extensively" on itssection 4A-107
authority to supersede provisions of
Article 4A. and itsstatement in the
competitive impact analysis to § 210.25
that the Board “does not believe that the
proposed subpart B supersedes or
preempts any express provisions of
Article 4A.” The discussion of the use of
the Board's preemptive authority in
supplementary information for the final
rule isconsistent with the discussion in
the competitive impact analysis.
Generally, subpart B only varies Article
4A in ways that itcould be varied by a
funds-transfer system rule. For example,
the Board has overridden Article 4A so
as to apply subpart B to portions of a
funds transfer through Fedwire where
other portions are subject to the
Electronic Fund Transfer Act. In
addition, as discussed above, the
Expedited Funds Availability Act and
Regulation CC override a portion of
Article 4A a3 incorporated in subpart B.
210.25— Authority, purpose, and
scope. The Board proposed
incorporating those provisions of Article
4A of the Uniform Commercial Code
into subpart B that are not inconsistent
w ith the provisions set forth expressly
in subpart B of Regulation Jto provide a
more comprehensive set of rules for
funds transfers involving Federal
Reserve Banks than iscurrently
provided by subpart B. One commenter
stated that subpart B’s incorporation of
Article 4A will make state passage of
Article 4A ministerial. The Board
believes that state adoption of Article
4A is stilldesirable to govern the rights
and obligations of parties to funds
transfers that do not go through Fedwire
and remote parties to Fedwire funds

transfers to the extent that their rights
and obligations are not governed by
subpart B.
The Board was requested to clarify its
intent regarding the preemptive effect of
subpart B (incorporating Article 4A) on
individual state laws. In the
Commentary to § 210.25(a), the Board
has clarified that subpart B only
preempts inconsistent provisions of
state laws, and that itdoes not affect
state law governing funds transfers that
does not conflict with the provisions of
subpart B, such as Article 4A, as
enacted in any state, as itapplies to
parties to funds transfers whose rights
are not governed by subpart E
The Board was asked to clarify
whether the Uniform Commercial Code
Article 1 provisions are also
incorporated in proposed subpart E and
if so, whether subpart B would
supersede state versions of Article 1.
The commenter expressed concern that
unless subpart B incorporated Article 1
or an explanation of the status of Article
1 was included in the Commentary,
court decisions would be inconsistent in
this respect. The Board has added a
sentence to the Commentary to
§ 210.25(b) clarifying that the Article 1
definitions referred to in section 4A105(d) are also incorporated in subpart
B. The Commentary also clarifies that
the version of Article 1 referred to is
that approved by the National
Conference of Commissioners on
Uniform State Laws and the American
Law Institute.
Two commenters stated that the
Board should clarify the extent to which
subpart B applies to those transfers not
covered by Article 4A because a portion
of the transfer iscovered by the
Electronic Fund Transfer Act ("EFT
Act"), 15 U.S.C. 1693 et seq. and the
Board's Regulation E, 12 CFR part 205.
One of these commenters suggested that
the Regulation E Commentary be
amended to state that Regulation E does
not apply to a transfer any portion of
which goes through Fedwire. The Board
has amended the regulation and revised
the Commentary to provide that subpart
B governs a funds transfer sent through
Fedwire, as provided in the scope
provisions, even though a portion of
such funds transfer is also covered by
the EFT Act, but that the portion of a
funds transfer governed by the EFT Act
isnot governed by subpart B.
One commenter suggested that the
Board may need to include Article 4A in
the Federal Register notice with the final
regulation to satisfy the Administrative
Procedure Act, 5 U.S.C 553 et seq. The
Board has included Article 4A in the
Federal Register notice as appendix B to




revised subpart E
Eight commenters disagreed with the
limitation of the scope of proposed
subpart B to that of a funds-transfer
system rule under Article 4A. These
commenters suggested that the Board
use its authority under section 4A-107 to
apply subpart B to achieve end-to-end
coverage so that subpart B would apply
to all parties to a Fedwire funds
transfer. Most of these commenters
stated that itisnot competitively
inequitable for the Board to expand the
scope of subpart B beyond the scope
achievable through a funds-transfer
system rule, and in fact that section 4A—
107 contemplates this action by the
Board. Further, one commenter believed
that proposed | 210.25 is ambiguous
because itstates that subpart B is not a
funds-transfer system rule, but proposes
to bind remote parties as ifitwere a
funds-transfer system rule. However,
one commenter, a foreign central bank,
believed that itwould be inconsistent
with international payments practice for
subpart B to purport to govern the
relationship between foreign banks and
their customers outside the United
States merely because a portion of a
funds transfer went through Fedwire.
This commenter requested clarification
that the Board does not intend to extend
the scope of subpart B to govern the
relationship between foreign banks and
their customers.

transfer. While such coverage might
provide legal certainty to such
transactions, the parties to these
t'ansar.tions may not know of or desire
such certainty. Further, the Baord does
r ;t believe that there is a compelling
c ise for achieving such added certainty
f r transfers through Fedwire as
opposed to transfers through other
f ads-transfer systems or book
t onsfers.

For these reasons, the Board has not
expanded the scope of subpart B to
achieve end-to-end coverage, but
Fedwire participants may obtain end-toend coverage in the same manner
available to private funds-transfer
systems under section 4A-507— through
notice to remove parties. Consequently,
the scope of proposed § 210.25 has not
been changed. See , however, the
discussion of the elimination of the
warranties contained in proposed
§§ 210.28(c) and 210.29(c) by direct
Fedwire participants that remote parties
had received notice. In addition, the
Board revised proposed § 210.25(b) and
the Commentary to that section for
clarity.

In the proposal, the Board indicated
that each Federal Reserv e Bank will
issue an operating circular governing the
details of its funds-transfer operations
and certain other matters. Two
commenters expressed concern that a
Federal Reserve Bank may individually
The Board believes that subpart B
should have the same scope as if it were vary the subpart B rules in its Fedwire
operating circular. One of these
a funds-transfer system rule under
commenters suggested that subpart B
Article 4A. This, subpart B binds only
should expressly limit the Federal
parties that are direct Fedwire
Reserve Banks’ authority to vary
participants and remote parties that
have received notice in accordance with § 210.25 because Fedwira is a national
system and the Federal Reserve’s
section 4A-507 that Fedwire might be
policies
should not fundamentally differ
used In the funds transfer and that
among districts. The ether commenter
subpart B is the governing law. The
suggested that the Board established an
Board recognizes that private-sector
oversight committee to prevent
providers of funds transfer services
operating circular discrepancies.
could not achieve end to-end coverage
The Federal Reserve Banks cannot
for their fund; transfer system rules
through federal regulation. In addition to vary the subpart B rules in their
considerations of competitive equity, the operating circulars, because the
regulation specifies that the circulars
Board is concerned that applying
must be consistent with subpart 3.
subpart B to ad parties to a funds
Federal Reserve Bank and Board staff
transfer sent through Fedwire would
are currently drafting a model Fedwire
govern rights between parties remote
operating circular, and the Board
from a Federal Reserve Bank in which
anticipates that the circulars issued by
the Federal Reserve Bank has no
the Federal Reserve Banks will be
financial interest, including foreign
substantially similar to the model
parties. For example, if the Board
circular. Further, the Board's general
auplied subpart B to achieve end-to-end counsel will review the model circular :
coverage of bunds transfers that go
for consistency with applicable law,
through I’edwirs. subpart B would
including subpart B. Therefore, the
purport to govern the rights between an Board has not changed this provision of
originator and originator's bank located § 210.25(c) in the final regulation. The
eooard that did not contemplate that
Board has clarified in the Commentary
Fedwire would be used to carry5out the to § 210.25(c) that Federal Reserve Bard
4

revised regulation to clarify that the
“beneficiary's bank.” for clarity.
Operating Circulars may supersede
inconsistent provisions of Article 4A as Expedited Funds Availability Act (12
210.27—
Reliance on identifying
set forth in Appendix B and as enacted U.S.C. 4001 et seq.) and Regulation CC
number. Article 4A provides that a bank
(12 CFR part 229) control subpart B on
in any slate.
may rely on the number in the payment
availability of funds because the
order identifying an Intermediary bank,
Article 4A allocates liability for
the beneficiary’s bank or the
unauthorized payment orders based cn express provisions of the Expedited
Funds Availability Act are a clearer
beneficiary, even :tthe number is
the commercial reasonableness of the
inconsistent with the name, if the bank
security procedures that are used by the expression of Congressional intent on
receiving bank to verify its customers’ this issue. The Board revised proposed does not know that the name and the
number refer to different persons [see
payment orders (see section 4A-202). In § 210.25(d) for clarity.
210.25— Definitions. Two commenters sections 4A-207 and 4A-206). Proposed
proposed § 210 25(c), the Board stated
that the Federal Reserve Bank operating suggested that the Board clarify whether r§ 210.27 provided notice to nonbank
requests for credit transfers, or
senders that Federal Reserve Banks may
circulars would specify the security
drawdown requests, sent through
rely on numbers in the payment order
procedures that would be used in
Fedwire are considered to be payment
identifying the intermediary bank, the
Fedwire transfers. Two commenters
beneficiary's bank, and the beneficiary.
asked that subpart B explicitly address orders under subpart B. One of these
commenters noted that comment 4 to
One commenter expressly agreed with
security procedures. One of these
section 4A-104 states that drawdown
this aspect of the Board’s proposal.
commenters believed that subpart B
requests in the form of a credit transfer Another commenter believed that the
should provide for a course of dealing
arrangement to minimize the burden of where the same party is both originator quality of Fedwire would be reduced
obtaining new written agreements and and beneficiary are treated as payment and risk would be increased ifthe
orders under Article 4A. The same
Federal Reserve Banks used only the
establishing new security procedures.
identifying numbers, and not also the
The other commenter recommended that commenter did not believe that the
Federal Reserve Banks should have
names, to identify the beneficiary. This
subpart B establish minimum security
discretion to determine in their
commenter recommended that the
procedures that are deemed
operating circulars whether such
Federal Reserve use both name and
commercially reasonable to provided
requests are considered payment orders. account number in processing Fedwire
guidance for the industry.
The other commenter requested
transfers.
The Board belisves that the
clarification on which rales, ifany,
The Board believes that the benefits
operational details of the security
govern drawdown requests excluded by of automated processing can be fafiv
procedures used for Fedwire funds
Article 4A but sent through Fedwire.
achieved only ifrouting numbers or
transfers are more appropriately
The Board believes that requests for
other identifying numbers can be relied
iddressed in the Federal Reserve Bank
credit transfers sent through Fedwire
upon to process Fedwire transfers.
;perating circulars, and thus has not
should not be considered to be payment Article 4A recognizes these efficiencies
ncluded the specifics of the security
orders covered by subpart B because
by shielding banks that rely on the
rocedures in the regulation, because
they are not payment orders addressed
identifying number, as long as the bank
he Board anticipates that the security
to a Federal Reserve Bank; the Federal
isnot aware of a discrepancy between
'rocedures that are used will evolve
the name and number {see sections 4Aiver time. With respect to the comment Reserve Banks act solely a3 a
207 and 4A-206). Therefore, the Board
n minimum security procedures, .Article transmission facility with respect to
these messages. Therefore, the board
has retained this provision in the final
A contemplates that the issue of
regulation. The Board has revised the
/hether a particular security' procedure has not expanded the definition of
I 210.27(b) Commentary for clarity.
icommercially reasonable is a question payment order to include these
210.28—
Agreement of sender. Section
flaw, to be determined by the courts messages and has clarified that these
210.28 of the proposal provided that a
nder standards set forth in section 4A- messages are not treated as payment
52(c).For these reasons, the Board does orders under subpart B because they are sender of a Fedwire funds transfer did
not have a right to incur overdrafts in its
otbelieve itis appropriate to prescribe not an instruction to a Federal Reserve
Bank to pay money. The exclusion of
account with a Federal Reserve Bank.
y regulation what constitutes
these messages from the subpart B
One commenter believed that the
jmmercially reasonable security
overdraft proposal should be revised
ocedures. Further, the Board does not definition of payment order does not
because the Board's payments system
elieve that itis appropriate to specify affect whether they are subject to
Artie: 2 4A, as a.iepted ir. a given state.
risk reduction program aBows banks to
e means by which private parties
Tive at an agreement with each other The 13card amer<ded the proposed
incur daylight overdrafts. The
l 2 in 26(c) derm non of "automated
commenter maintained that the ability
ito security procedures.
clear! ng houset rar.sfer" by deleting the
to incur an overd-aft is necessary to the
A commenter suggested that Board
efficient operation of the nation's
arify whether subpart B covers ACH paras p "in the r.d m of an automated
payment system and is necessary to
edit transfer. The proposal expressly dean rig house rssoc ati
eluded ACH transfers both from the was redundenttto the fu•st oart of the
reduce systemic risk.
ifinition of Fedwire (§ 210.26(e)] and defid tion. In adudion, the Board bus
The Board does not believe that
amended the proposed § 210.26(h)
>m the definition of payment order
subpart B is inconsistent with its risk
definition of “off-line bank” for clarity.
210.26(1)). In addition, § 210.25(a)
reduction policies. A bank does not
ites that subpart B governs only funds The Board has also deleted the proposed have a right to incur an overdraft in its
§ 210.25(1) definition of “Vnifc-m
nsfers through Fedwire. Therefore,
account at a Federal Reserve Bank,
Commercial Code" and clarified in
iBoard believes that itisclear that
although a Federal Reserve Bank may.
apart B does not govern ACH credit § 210.25(a) that the version of Article 4A in certain circumstances, permit a
incorporated in subpart B is that set
seeder to incur an overdraft.
nsfers.
forth in appendix E. Further, the Board
Consequently, the Board believes that
unally, on its own initiative, the
revised the Commentary to § 210.26(d),
the proposed provisions addressing
ard added § 210.25(b)(4) to the




5

overdrafts are appropriate sad has not
substantively modified this section in
the final regulation: however, it has
revised the Commentary to refer to the
other overdraft policies and has revised
proposed § 210.28(b) (3) and (4) and the
accompanying Commentary for clarity.

Sections 4A-204(a) and 4A-304
provide that to receive interest
compensation, a sender must notify a
receiving bank of an unauthorized or
erroneously executed payment ordeT
within a reasonable time not exceeding
90 days from receipt ofthe notice ofthe
payment order. The Board proposed 10
funds-transfer business days as the
reasonable time after the sender
receives notice that the payment order
was accepted or executed, or that the
sender's account was debited with
respect to an order, for the sender to
notify itsFederal Reserve Bank that the
order was unauthorized and erroneously
executed. This 10 funds-transfer
business days was an extension of a
similar period of 10 calendar days
established by § 210.34(b) of current
subpart B of Regulation J.
Ten commenters disagreed with the
Board’s proposal to allow a sender 10
funds-transferbusiness days to provide
this notice to itsFederal Reserve Bank.
While one comm enter believed that two
funds-transfer business days should be
sufficient for senders to notify Federal
Reserve Banks of an improper
execution, the remaining commenters
believed that the time should be longer
than that proposed, because senders
must provide payment order information
to their nonbank customers to aid in the
discovery oferrors. These commenters
proposed time periods ranging from 30
dayB to 90 days as a reasonable time for
a sender to notify itsFederal Reserve
Bank.
The Board has modified the proposal
to allow senders 30 calendar days after
receiving notice that the payment order
was accepted or executed, or that the
sender's account was debited with
respect to an order, to notify the Federal
Reserve Bank that the order was
unauthorized or erroneously executed,
for the purpose of eligibility for interest
payment. Section 210.34(b) of current
subpart B gives a sender 10 calendar
days from receipt of an advice of debit
to report a possible error to its Federal
Reserve Bank. Banks generally report
discrepancies in their account very
promptly to their Federal Reserve Bank,
and the Board is concerned that a
significant relaxation of the current
standards of timeliness in reporting
problems could encourage banks to
defer reconciling their accounts. In




addition, the Board believes that
senders can negotiate comparable
timeframes to report possible errors
with their bank customers. Therefore,
the Board believes that 30 calendar days
provides senders ample time to review
notifications sent by a Federal Reserve
Bank and other information available to
the sender to determine whether an
error has occurred and notify the
Federal Reserve Bank of a possible
error. In addition, the Board revised the
§ 210.28(c) Commentary for clarity.
Z10J28(c) and 21039(c)—Notice by
sender and receiving bank of use of
Fedwire In itsproposal the Board

recognized that itwould be desirable to
have subpart B and Article 4A as
incorporated therein govern the rights of
obligations of allparties to a Fedwire
funds transfer. Consistent with the
Article 4A provisions concerning choice
of law and the Board’s competitive
analysis, the Board proposed that
subpart B apply to direct Fedwire
participants, and to only those remote
parties that receive notice that the funds
transfer may be sent through Fedwire
and of the governing law (see section
4A-507(c)). This approach would ensure
that customers are aware of the rales
that apply to then transactions, and
would not bind remote parties to
subpart B in a manner unavailable to
private funds-transfer systems.
The Board proposed torequire direct
Fedwire participants to warrant to their
Federal Reserve Bank that all remote
parties to a Fedwire transfer have
received notice thatFedwire may be
used to effect the transfer, and of the
governing law. This warranty schema
had two primary purposes: (1)To
encourage banks to provide the notices
to remote parties to a Fedwire transfer
that are necessary to achieve end-to-end
coverage by subpart ft and (2) to shield
Federal Reserve Banks from potential
liabilityforconsequential damages to
parties in states that have not adopted
the Article 4A limitation on
consequential damages.
Fourteen commenters opposed the
warrant., proposal. Four of these
commenters were concerned that the
proposal may require U.S. banks to bind
foreign parties to subpart B for
international transfers partially
executed through Fedwire. and that
foreign remote parties to the transfer
may object to the application of U.S. law
to the relationship between foreign
banks and their foreign customers.
Several commenters argued that U.S.
bonks would have to assume the risk of
not providing notice or receiving similar
warranties from foreign parties to the
6

transfer in order to remain in the
international payments business. Two
commenters believed that an attempted
foreign exportation ofArticle 4A and
subpart B may be counterproductive to
the United States’role in the current
United Nations’efforts to develop
universal rules for international
payments. One of these commenters
argued that the warranty scheme, if
adopted, would encourage retaliation
against U.S. banks through other
countries enacting similar laws, thereby
creating confusion and legal uncertainty
for the U.S. barndng community and the
U.S. funds-transfer user community.
Ten commenters objected to the
warranty requirements as burdensome
and impractical because there may be
unknown remote parties on either end of
the transaction, and itwould be
impossible to ensure that notification
had been given. In addition, one
commenter believed that the presence of
unknown parties makes itimpossible for
the warranties to be given in gQod faith
and would force banks to provide
warranties for which they have no
recourse. Another commenter opined
that the warranties may subject
immediate Fedwire participants to strict
liability to parties with whom a bank
has no dealings or agreements. One
commenter noted that smaller
institutions may not be able to bear the
financial consequences of a warranty
breach, and therefore may be unable to
maintain correspondent relationships
with larger banks.
Five commenters believed that the
warranty requirement would be
particularly onerous on the receiving
bank because the notice must be given
before the transfer iseffective and any
customer may be a potential beneficiary
including individuals receiving transfers
to be paid by the beneficiary’s bank
upon presentation of proper
identification (“PUPID” transfers), but
with whom the receiving bank has no
account relationship.
Two commenters believed that the
warranties give the Federal Reserve a
competitive advantage, allowing the
Federal Reserve to accomplish by
regulation what private-sector banks a:
unlikely to receive by contract. Some
commenters stated that they were not
aware of any other funds-transfer
system that planned to impose a simile
warranty scheme. One commenter
ergued that if banks could obtain ail
terms by coniracl, Article 4A would be
unnecessary. Another commenter note
that Federal Reserve Banks are not
required to provide similar warranties
their customers.
One commenter argued that banks

regulation. Although the warranty would
may lose business to other banks that
have encouraged end-to-end coverage of
are willing to assume the risks ofnot
requiring notice or warranties. Another funds transfers and shielded Federal
Reserve Banks from consequential
commenter argued that notice of the
governing law isnot necessary because damages, the Board believes that the
itwould not affect a customer's decision complications inherent in the proposed
to use Fedwire to make a funds transfer. warranty scheme and the burdens and
liability the warranty would place on
This commenter also noted that the
proposal does not clarify whether notice banks that would be subject to it
is considered to have been given when it outweigh these benefits. Further, the
Board notes that while at least one
isreceived or when itis sent, and
funds-tran3fer system has attempted to
therefore receipt of notice may be a
achieve similar results by requiring
critical issue of fact in litigation.
One commenter asked how banks are notices described in section 4A-507(c),
others have not, apparently for reasons
expected to comply with the warranty
cited by the commenters. See also the
and notification provisions. Another
above discussion concerning scope
commenter noted that the proposal
under 8 210.25. Finally, with respect to
provides littleguidance about how
notice is to be accomplished, although it commenters' concerns that subpart B
would govern the relationships between
believed that Article 4A requires a
remote parties that may not wish their
separate notice for each transfer.
relationship to be governed by subpart
One commenter objected to the
warranties because itbelieved that the B, the Board notes that under section
Federal Reserve Banks are not likely to 4A-5G7(b), even ifthe parties have
received the notices contemplated by
be exposed to the possibility of
consequential damages, even in states Article 4A, the parties may agree on an
alternative law to govern the rights and
that have not enacted Article 4A,
because the Federal Reserve Banks owe obligations between them.
210.29—Agreement of receiving bank.
a duty only to parties in privity with
Under section 4A-301(b), a receiving
them, and remote parties would be
bank is obligated to transmit a payment
third-party beneficiaries of that duty.
order at a time and by means
While the sender to a Federal Reserve
reasonably necessary to allow payment
Bank may be liable to itscustomer for
to the beneficiary on the payment date
damages greater than that allowed by
Article 4A, this commenter argued that or as soon thereafter as isfeasible. To
the excess liability would not transfer to enable the Federal Reserve Banks to
fulfillthis duty, the Board proposed that
the Federal Reserve Bank.
an off-line receiving bank must either
Seven commenters suggested
eliminating the warranty requirements notify itsFederal Reserve Bank in
and expanding the scope of subpart B to writing ifitacts as the beneficiary’s
bank with respect to Fedwire payment
rind allparties to a Fedwire transfer
orders for a beneficiary that isa bank,
hrough Regulations J‘s federal law
or warrant that itdoes not hold any
itatus. One of these commenters
such accounts.
uggested that this approach could be
One commenter stated that this
urther refined to cover only domestic
iarties. One commenter noted that this proposed warranty off-line banks should
ipproach would insulate allparties from be restricted to funds-transfer
onsequential damages. One commenter relationships with customer banks. The
Board believes that § 210.29(b) already
aid that under an expanded scope,
addresses this issue; the provision
onsequential damages should be
requires an off-line bank that does not
llowed only by agreement.
notify the Federal Reserve Bank that it
One commenter suggested that the
maintains an account for another bank
ederal Reserve Banks be required to
to warrant only that itdoes not act as an
ve comparable warranties to the•“
intermediary bank or a beneficiary's
amediate participants or modify the
bank ‘‘with respect to payment orders
irrcnt warranties so that the sender
arrants to all subsequent receiveis and received through Fedwire” for a bank
beneficiary. Therefore, the Board has
e receiving bank warrants to all
not modified this provision, but has
avions senders. Another commenter
ggested that where notification cannot clarified this point in the Commentary to
?accomplished by contract, the Board § 210.29.
210.31—Payment by a Federal
oeid address the treatment of
Reserve Bank to a receiving bank or
motified payment orders in the
beneficiary. In this section of the
bpart B Commentary.
proposal, the Board specified the time
Based on an analysis of the
when a Federal Reserve Bank satisfies
mments, the Board has deleted the
itsArticle 4A obligation to pay the
irranty previsions from the final




7

receiving bank or beneficiary the
amount of the payment order issued by
the Federal Reserve Bank [see sections
4A—102— 4A-405). One commenter
suggested that proposed 8 210.31(b) be
amended to provide that notices of
credit by Federal Reserve Banks are
‘‘given’’rather than “sent” to reflect
telephone notice.After reviewing the
UCC Article 1 definitions, the Board
concluded that “sent” adequately
reflects telephone notification, and
therefore has not made the suggested
change in the final regulation.
210.32—Federal Reserve Bank
liability; payment of interest. In this

section, the Board proposed that Federal
Reserve Banks shall not exercise the
section 4A-305(c) option of agreeing
wiih a sender, receiving bank or other
Federal Reserve Bank to be held liable
for consequential damages.
One commenter believed the
consequential damages limitation is
crucial to protect both Federal Reserve
Banks and their immediate participants
and recommended that subpart B be
expanded to preclude the recovery of
consequential damages from other
parties to a Fedwire transfer. Another
commenter said that the statement in
the competitive impact analysis that the
Federal Reserve Banks do not agree to
consequential damages liabilitywas
already a clear result under Article 4A,
as incorporated into subpart B, and that
the proposal should be revised to clarify
that Federal Reserve Banks are
forbidden from agreeing to
consequential damages liability.This
commenter also stated that Federal
Reserve Banks should not be forbidden
from agreeing to consequential damages
liability or damages other than those
provided for in Article 4A because other
banks will likely follow the Federal
Reserve’s lead, rendering the Article 4A
ability to agree to consequential
damages useless.
Another commenter stated that the
Board should deny consequential
damages recovery to any party to a
Fedwire funds transfer, especially since
a Federal Reserve Bank could cause the
error that leads to a consequential
damages claim. It stated that the
proposal implies that other parties could
ag^ee with the Federal Reserve to
assume liability for consequential
damages. Further, this commenter noted
the proposal did not state the
implications of a Federal Reserve Bank
exceeding its authority and agreeing to
consequential damages liability.
The Board has amended § 210.32(a)
and the corresponding Commentary to
state: (1) That a Federal Reserve Bank’s
assumption of consequential damages

liability, except as provided in section
4A-404(b), would violate subpart B, and
therefore would be ineffective, and (2)
that subpart B does not affect the ability
of other parties to a funds transfer to
agree to consequential damages liabilty.
The Board does not believe that it is
competitively inequitable to forbid the
Federal Reserve Banks from agreeing to
consequential damages liability because
section 4A-305 provides that banks can
only be held responsible for
consequential damages when they agree
in writing to assume such liability.
Therefore, private-sector banks could
similarly refuse to assume consequential
damages liability.
In § 210.32(b), the Board proposed that
when a Federal Reserve Bank is
required under Article 4A to pay
compensation in the form of interest to
another party in connection with its
handling of a funds transfer, it may
provide such interest compensation
through an as of adjustment or through
an explicit interest payment if the bank
receiving the compensation cannot
make use of an as of adjustment
because of a low or zero reserve and/or
clearing balance requirement [see
section 4A-506). The proposal further
provided that a bank must pass on the
benefit of an as of adjustment to an
originator or beneficiary of a funds
transfer that is entitled to compensation
in the form of interest from a Federal
Reserve Bank under Article 4A.
One commenter believed that subpart
B should not supersede 4A-506 by
requiring banks to pass along the benefit
of an as of adjustment or explicit
interest payment at the same rate paid
by the Federal Reserve, nor should they
be required to pass along an explicit
interest payment as explicit interest if
they have agreed to another
arrangement, such as compensating
balances. Further, this commenter
believed that the Board should clarify
the meaning of “amount of error" in
proposed 8 210.32(b)(1).
The Board does not believe the
revised regulation supersedes section
4A-506 by requiring banks to pass along
as of adjustments or explicit interest
payments at the same rate paid by the
Federal Reserve Bank. This requirement
to pass along compensation at the same
rate paid by the Federal Reserve Bank is
applicable only where the Federal
Reserve Bank is required to pay
compensation to a bank’s customer and
the bank is merely acting as a conduit in
passing along the compensation. In
some cases, the Federal Reserve Bank
may not be able to identify the bank’s
customer that is entitled to the payment.
The Commentary notes that a bank




acting as a conduit for the Federal
Reserve Bank’s compensation to a
customer may pass on the benefit of that
payment either through a direct interest
payment or, if the customer so agrees,
through compensating balances,
provided that the value is not less than
that of a direct interest payment. The
Board also amended the proposal to
allow a Federal Reserve Bank to pay
compensation directly to a remote party
entitled to payment. In situations where
the bank is responsible for paying
compensation, subpart B does not alter
a bank’s ability to agree with the
customer on a specified rate or method
of compensation, pursuant to section
4A-5O0.
In addition, the Board has amended
8 210.32(b)(1) in the final regulation and
the accompanying Commentary to
clarify the method by which a Federal
Reserve Bank will calculate an as of
adjustment and to clarify that a Federal
Reserve Bank may pay interest
compensation directly to the party
entitled to compensation. The Board has
also revised proposed 8 210.32(b)(2) and
the accompanying Commentary for
clarity.
Miscellaneous. One commenter
inquired what the appropriate means of
providing notification would be under
section 4A-404(b) of Article 4A and
subpart B. Section 4A-404(b} requires a
beneficiary’s bank to give notice to the
beneficiary of the receipt of a payment
order by midnight of the bank’s next
funds-transfer business day following
receipt of the order unless varied by
customer agreement or funds-transfer
system rule. The commenter did not
believe that banks should be liable for
failure to provide timely notice due to
circumstances beyond their control, e.g.,
communications failure or postal delay.
Another commenter suggested that
Subpart B provide that as an alternative
to individual credit advises, the
requirement to notify beneficiaries could
be satisfied by other means, such as on­
line inquiry or daily statements. This
commenter stated that if a beneficiary
does not choose one of these
alternatives, monthly account
statements should suffice to satisfy the
section 4A-404(b) notification
requirement.
On a related issue, one commenter
believed that 8 210.31(a) should be
amended to deny consequential
damages where a bank refuses to make
payment upon demand from a customer,
if payment was not made due to a
reasonable uncertainty of whether
acceptance has occurred, even if
acceptance occurs through credit to the
8

bank’s reserve account.
One commenter described two
hypothetical cases involving PUPID
transfers where the commenter believed
that Article 4A may create a hardship.
In the first case, if the beneficiary's bank
sends notice to the beneficiary's
address, but the beneficiary never
collects the funds, the originator would
not be entitled to reclaim the money
because under section 4A-405(a), the
sending of notice makes the transfer
final. If, however, the beneficiary's bank
did not have an address for the
beneficiary, and the beneficiary failed to
claim the funds within five days, the
payment order would be canceled under
Article 4A because it was not accepted
and the funds would be returned to the
originator [see, sections 4A-209(b)(l),
4A-209fc), and 4A-211(d)). This
commenter proposed that Subpart B be
amended to allow the beneficiary’s bank
(1) to return the funds to the originator
for an accepted but unclaimed order
after 21 calendar days from the date of
receipt, and (2) to hold the funds for an
unaccepted order for 21 calendar days
before returning any unclaimed funds to
the originator.
The Board believes that these
comments involve interpretations of
Article 4A. The Board believes that it is
not appropriate for the Board to
interpret Article 4A to address these
issues solely for Fedwire at this time.

One commenter requested that the
Board clarify its intention to delete
8 8 210.33-210.38 of current Subpart B in
the final regulation. Accordingly, the
Board has amended the preamble to
subpart B to clarify that 88 210.33-210.38
of current subpart B are not part of the
revised regulation.
Finally, one commenter requested an
additional comment period if the
proposed final rule materially differs
from this draft The Board does not
believe that the final rule so differs from
the proposal as to warrant an additional
comment period.
Competitive Impact Analysis
The Board recently formalized its
procedures for assessing the competitive
impact of changes that have a
substantial effect on payments-system
participants.8 Under these procedures,
the Board will assess whether the
proposed change would have a direct
and material adverse effect on the
ability of other service providers to
compete effectively with the Federal
Reserve in providing similar services
• These procedures are described in the Board's
policy statement titled ‘The Federal Reserve in tfo
Payment* System,” which was revised m March
TWO. {55 FR lis ts , March 29.19S0J

due to differing legal powers or
constraints or due to a dominant market
position of the Federal Reserve deriving
from such legal differences. The
following is a section-by-section
competitive impact analysis of revised
subpart B of Regulation J.
210.25—Authority, purpose, and
scope. Article 4A provides that most,
but not ail, of its provisions may be
varied by agreement of the affected
parties, or by a funds-transfer system
rule (see section 4A-501). A fundstransfer system rule may select the law
of a particular state to govern the rights
and obligations of the participants in the
funds-transfer system, and to govern the
rights and obligations of remote parties
to the transfer to the extent they were
given notice that the funds-transfer
system may be used, and of the choice
of law of that system (see section 4A507). The Federal Reserve can supersede
any portion of Article 4A by Board
regulation or Federal Reserve Bank
Operating Circular (see section 4A-107).
In addition, the Board can preempt
Article 4A provisions under the
provisions of the Federal Reserve Act or
under its authority under the Expedited
Funds Availability Act (12 U.S.C. 4001 et
seq.) to regulate any aspect of the
payments system in order to expedite
availability of funds, improve the check
processing system, or otherwise carry
out the provisions of that Act.
Subpart B generally varies Article 4A
provisions only to the extent that such
provisions could be varied by agreement
or by a private-sector funds-transfer
system rule. In addition, the scope of
applicability of subpart B is generally
equal to that of a funds-transfer system
rule that adopts a choice of law
provision. Specifically, subpart B
governs only parties in privity with
Federal Reserve Banks or remote parties
that received notice the Fedwire may be
used to make the funds transfer and of
the law governing Fedwire transfers.
This approach is consistent with the
scope adopted by other funds-transfer
systems. CHIPS has adopted a rule that
the rights and obligations of both direct
participants and remote parties to a
funds transfer, a portion of which is
executed through CHIPS, is governed by
New York law. Staff believes that this
rule would be binding on CHIPS
participants and on remote parties to the
extent they received notice that CHIPS
may be used in the transfer and of the
governing law. CHIPS rules do not
require direct participants in their fundstransfer systems to warrant that notice
has been provided to remote parties or
to provide such notice to remote parties.




NACHA has adopted a rule that the
rights and obligations of the parties to a
credit item subject to Article 4A will be
governed by New York law, except to
the extent that the parties to the transfer
agree to be governed by another law.
NACHA rules will require direct ACH
participants to provide notice to remote
parties (i.e., the originator and
beneficiary) that credit items subject to
Article 4A may be transmitted through
one or more ACHs and of the governing
law. (These NACHA rule changes will
become effective on January 1,1991.)
In the case of a funds transfer
involving both Fedwire and another
funds-transfer system, such as CHIPS,
absent an agreement to the contrary,
subpart B would take precedence over
any inconsistent funds-transfer system
rule applicable to a remote party that
received notice that Fedwire may be
used to make the transfer and of the
governing law, because of the status of
subpart B as federal law. Subpart B
would not take precedence over a
choice of law made by agreement under
section 4A-507(b) between remote
parties to a funds transfer a portion of
which is sent through Fedwire. Because
subpart B parallels closely the Article
4A provisions, the Board does not
believe that there will be many
instances where private-sector fundstransfer system rules would be
inconsistent with, and thus preempted
by, the provisions of subpart B.
With respect to a funds transfer, a
portion of which is governed by the EFT
Act or Regulation E, the scope of
subpart B is broader than that of Article
4A. Section 4A-1Q8 states that Article
4A does not apply to a funds transfer if
any part of the transfer is governed by
the EFT A ct In those limited
circumstances where a transfer is
carried out in part through Fedwire and
is governed in part by the EFT A ct the
Board believes it is important that the
rights and obligations of the Federal
Reserve Bank and banks in privity with
the Federal Reserve Banks be defined
by subpart B and Article 4A as
incorporated therein with respect to the
Fedwire portion of the transfer. If the
only law governing these transfers were
the EFT A ct the rights and obligations
of the Federal Reserve Banks and their
direct senders and receiving banks
would not be fully defined, because the
scope of the EFT Act is limited primarily
to the bank/customer relationship. The
Board believes that other funds-transfer
systems could achieve similar coverage
by agreement or through a fundstransfer system rule.
The Board does not believe that the

9

scope of revised subpart B, or the
approach taken in incorporating the
Article 4A provisions in this subpart,
would have an adverse competitive
effect.
210.26—
Definitions. Revised subpart
B generally incorporates the definitions
set forth in Article 4A, and includes
definitions of other terms not defined in
Article 4A. The subpart modifies the
definitions of two Article 4A terms—
“beneficiary’s bank" and “payment
order."
The subpart B definition of
"beneficiary’s bank” clarifies that a
Federal Reserve Bank may be a
beneficiary’s bank even though it is not
explicitly identified as such in the
payment order. This appears to be
consistent with the intent of Article 4A,
although the Article 4A definition
(section 4A-103(a)(3)) does not
contemplate a bank acting as a
beneficiary’s bank without being
designated as such in the payment
order.
Subpart B also provides that a Federal
Reserve Bank that is the beneficiary of a
payment order is also deemed to be the
beneficiary’s bank on the payment
order. Under Article 4A, the bank that
sends the payment order to the Federal
Reserve Bank as beneficiary would be
considered the beneficiary’s bank. In the
context of Fedwire payment orders,
deeming a Federal Reserve Bank to be
the beneficiary’s bank as well as the
beneficiary of a payment order does not
have any practical operational or legal
impact on the other parties to the funds
transfer. The Board does not believe
that these changes would have an
adverse competitive effect.
The subpart B definition of payment
order excludes ACH transfers, which
are subject to a separate Federal
Reserve Bank operating circular, and
excludes certain messages, such as
service messages, which are not
intended to be payment orders under
Article 4A. Further, under the subpart B
definition of payment order, certain non­
value Fedwire messages (i.e„ certain
messages designated as requests for
credit transfers) that may be defined as
payment orders under Article 4A are not
treated as payment orders for the
purposes of subpart B, because they are
not instructions to a Federal Reserve
Bank to pay money. The exclusion of
these messages from the scope of
subpart B does not effect their status as
payment orders under Article 4A, as
enacted in a particular state. The Board
does not believe that this definition
would have any adverse competitive
effect.
210.27— R e lia n c e on id e n tify in g

number. Article 4A provides that a bank unauthorized or erroneously executed
may rely on the number in the payment payment order within a reasonable time
order identifying an intermediary bank, not exceeding 90 days from receipt of
the beneficiary’s bank, or the
the notice of the order [see sections 4Abeneficiary, even if the number is
204 and 4A-304). Subpart B currently
inconsistent with the name, if the bank
provides that a sender is deemed to
does not know that the name and
approve the accuracy of an advice of
number refer to different persons {see
debit unless it objects in writing within
sections 4A-207 and 4A-208). The
10 calendar days of receipt of the advice
originator is obligated to pay the
[see current § 210.34(b)). The Board had
payment order (in the case of reliance
proposed that 10 funds-transfer business
on the number of the beneficiary) and
days be deemed the reasonable time for
the sender is obligated to compensate
a sender to notify its Federal Reserve
the receiving bank for any loss or
Bank: revised § 210.28(c) specifies 30
expenses incurred (in the case of
calendar days as the reasonable time
reliance on the number of the
within which senders must act, for the
intermediary bank or beneficiary’s
purposes of receiving interest or
bank) if the number was relied upon and compensation for losses as provided in
the originator or sender is a bank or if
Article 4A. Similarly, under Article 4A,
the originator or sender is a nonbank
banks may establish by agreement with
that had notice of the possible reliance
their customers what constitutes a
on the number.
reasonable time to provide this notice.
Revised subpart B includes provisions
Several commenters had noted that
providing notice to nonbank senders
the proposed 10 funds-transfer business
that Federal Reserve Banks may rely on day timeframe was unreasonably short,
the numbers in the payment orders
and that banks would not be able to
identifying the intermediary bank, the
obtain agreements with their nonbank
beneficiary’s bank, and the beneficiary. customers reducing the time within
Federal Reserve Banks will provide the which the customers must notify the
subpart B rules to their nonbank
bank of an improper debit to that extent.
senders, in part, to ensure that these
The Board believes that it is particularly
provisions serve as actual notice to
important that banks reconcile their
these senders. Therefore, this notice
accounts on a timely basis, and believes
would be provided by means similar to that banks could obtain agreements,
those that the Board presumes banks
similar to the requirement in the revised
will use to give this notice to their
regulation, with their bank customers.
nonbank senders, and would not have
Therefore, the Board does not believe
any adverse competitive effect.
that this requirement results in any
210.23—Agreement of sender. This
adverse competitive effect.
section provides that a sender
210.29—Agreement of receiving bank.
authorizes its Federal Reserve Bank to
This
section requires an off-line bank to
obtain payment for a payment order by
notify its Federal Reserve Bank if it
debiting the sender’s account at the
Federal Reserve Bank. In addition, this maintains an account for another bank,
section provides that a sender does not so that the Federal Reserve Bank will
provide telephone notice for all Fedwire
have a right to an overdraft in its
funds transfers received by that bank,
account, when overdrafts that are
incurred become due and payable, and including settlement transfers. If an off­
line bank does not provide this notice to
what actions a Federal Reserve Bank
its Federal Reserve Bank, it warrants
may take to recover the amount of an
overdraft or to secure an overdraft The that it does not act as an intermediary
bank or a beneficiary’s bank with
Board does not believe that these
respect to Fedwire payment orders for a
provisions would have an adverse
competitive effect because: (1) A sender beneficiary that is a bank.
The Board believes that this warranty
does not have a right to overdraft its
would have no adverse competitive
Federal Reserve account (although a
effect For example, the Board believes
Federal Reserve Bank may permit an
overdraft under certain circumstances), that this action would have no adverse
(2) the requirements are reasonable, and competitive effect on the operations of
are not obtainable solely due to unique CHIPS, because all CHIPS participants
are on-line to that system. Further, this
bargaining position of the Federal
warranty is a reasonable provision
Reserve, and (3) a private-sector bank
could impose similar requirements on its designed to enable Federal Reserve
Banks to fulfill their obligation under
customers to which it gives overdraft
section 4A-302 to execute payment
privileges.
orders at a time and by means
Article 4A provides that the sender
reasonably necessary' to allow payment
must notify a receiving bank of an




10

to the beneficiary on the payment date
or as soon thereafter as is feasible. The
ability to require this warranty is not
derived from unique bargaining position
cn the part of the Federal Reserve
Banks; correspondent banks that
provide funds-transfer services to off­
line respondent banks could impose a
similar warranty on their respondent
receivers.
210.30—
Payment orders. This section
sets forth the terms under which a
Federal Reserve Bank will accept
payment orders from a sender. The
section provides: That a sender must
have authorization to send Fedwire
payment orders to a Federal Reserve
Bank; that a Federal Reserve Bank may
reject any payment order; that a Federal
Reserve Bank may execute a payment
order through another Federal Reserve
Bank; that a sender may not instruct a
Federal Reserve Bank to select an
intermediary bank other than a Federal
Reserve Bank unless that bank is
designated in the sender’s payment
order; and that a sender generally may
not send a value-dated payment order
through Fedwire. The Board believes
that these provisions are reasonable and
that private-sector receiving banks may
arrange similar terms with their senders;
therefore, these provisions do not rely
on unique bargaining power of Federal
Reserve Banks. Consequently, the Board
believes that these provisions do not
have an adverse competitive effect
210.31—
Payment b y a Federal
Reserve Bank to a receiving bank or
beneficiary. The primary distinguishing
characteristic of Fedwire is that
payment orders are final and
irrevocable to the receiver when made.
This section, regarding when a Federal
Reserve Bank makes payment to a
receiving bank or beneficiary, parallels
current { 210.38(a) by providing that
payments to receiving banks and
beneficiaries are final at the earlier of
the time when the amount of the
payment order is credited to the
receiving bank’s or beneficiary’s
account or when the payment order is
sent to the receiving bank or when
notice of the credit is sent to the
beneficiary. Fedwire’s payment finality
could be viewed as a sufficiently
significant benefit to participants as to
have an adverse effect on competing
private-sector funds-transfer systems.
However, the Board believes that
Fedwire payment finality is vital to the
continued integrity and efficiency of the
payments system. Moreover, CHIPS will
soon be instituting a loss-sharing
arrangement to ensure the finality of its

settlement, thus increasing the certainty
of final payment over that system.
Correspondent banks providing fundstransfer services can provide payments
finality similar to that specified in
§ 210.32 to their respondent banks and
beneficiaries [see section 4A-405). For
these reasons the Board believes that
the benefits of Fedwire payment
finality—the certainty of payment and
the elimination of systemic risk—
outweigh any possible adverse
competitive effect
210.32—Federal Reserve Bar.k
liability; payment of interest Article 4A
provides that a bank is not liable for
consequential damages, unless it agrees
to be subject to such damages by
express written agreement. This section,
which states that, except as provided in
section 4A-404{a), a Federal Reserve
Bank shall not agree to be liable to a
sender, receiving bank, beneficiary, or
other Federal Reserve Bank for
consequential damages is consistent
with the presumption in Article 4A. The
Board believes that many private-sector
providers of funds-transfer services
similarly will not agree to be liable for
consequential damages; consequently,
the Board believes that this provision
does not have an adverse competitive
’ffect
Article 4A provides that the amount of
aterest payable under its provisions
ray be determined by agreement or
unds-transfer system rule (see section
A~506(a)}. Subpart B provides that a
ederal Reserve Bank may provide
iterest compensation through either an
s of adjustment or explicit interest
ayment. The Board believes that
roviding interest compensation In the
>rm of as of adjustments would not
ave an adverse competitive effect
ecause the Federal Reserve includes
le imputed cost of as of adjustments
dated to Fedwire transfers (computed
t the federal funds rate] in its total cost
?providing the Fedwire funds-transfer
•rvice to be recovered by the fees
tsessed for the service. Moreover, the
iard believes that banks could agree
ith their customers under Article 4A to
milar arrangements using
impensating balances, which would be
talogous to an as of adjustment
ovided by a Federal Reserve Bank. In
set where a Federal Reserve Bank
ovides compensation in the form of
phdt interest interest would be
lculated in accordance with the
oceduret specified in Article 4A (see
ction 4A-506(b)).




Final Regulatory Flexibility Act
Analysis
Two of the three requirements of a
final regulatory flexibility analysis (5
U.S.C. 604), (1) a succinct statement of
the need for and the objectives of the
rule, and (2) a summary of the issues
raised by the public comments, the
agency’s assessment of the issues, and a
statement of the changes made in the
final rule in response to the comments,
are discussed above. The third
requirement of a final regulatory
flexibility analysis is a description of
significant alternatives to the rule that
would minimize the rule’s impact on
small entities and reasons why the
alternatives were rejected. As stated in
the initial regulatory flexibility analysis,
the Board does not believe that there are
any significant alternatives to the
revision of subpart B of Regulation J that
would (1) provide comprehensive rules
for funds transfers involving Federal
Reserve Banks, (2) make subpart B
consistent with state laws applicable to
funds transfers as more states adopt
Article 4A, and (3) help ensure that,
subject to their central banking
responsibilities, Federal Reserve Banks
compete on an equitable basis with
private-sector providers of fundstransfer services and concurrently
minimize any significant impact of the
rule on small entities. The Board
considered the effect of the subpart B
revisions when developing them and
does not believe that complying with the
revised Subpart B rules will impose a
significant cost on depository
institutions, including small institutions.
Further, the purpose of the subpart B
revisions is to provide comprehensive
rules for funds transfers handled by
Federal Reserve Banks. This purpose
would not be achieved if the rules did
not apply to small entities that send or
receive funds transfers directly to or
from Federal Reserve Banks. Moreover,
subpart B could not address the rights
and responsibilities of Federal Reserve
Banks if small entities were generally
excepted from its coverage. In addition,
the revised Subpart B rules confer
important rights upon parties to a
Fedwire funds transfer, such as the right
to receive interest in certain
circumstances, and provide a shield
from consequential damages liability if a
mishap occurs. These rights would
benefit small institutions as well as
larger institutions. However, revised
subpart B applies only to parties that are
direct participants with a Federal
Reserve Bank, and those other parties to
a Fedwire funds transfer receiving

11

notice that the funds transfer may go

through Fedwire and that subpart B is
the governing law. Therefore, it is
possible that revised subpart B will not
apply to remote parties to funds
transfers if they are not direct
participants with a Federal Reserve
Bank and they do not receive the
contemplated notice. These remote
parties may include small entities.
List of Subject in 12 CFR Part 210

Banks, banking, Federal Reserve
System.
For the reasons set out in the
preamble, the Board amends 12 CFR
part 210 as follows:

PART 210—[AMENDED]

1. The authority citation for part 210 is
revised to read as follows:
Authority: Federal Reserve Act, sec. 13 (12
U.S.C. 342. sec. ll(i) and (j) (12 U.S.C. 248 (i)
and (j)). sec. 18 (12 U.S.C. 248(o) and 360), and
sec. 19(f) (12 U.S.C. 464); and the Expedited
Funds A vailability Act (12 U.S.C. 4001 et seq.)

2. The heading to part 210 is revised to

read as follows:

PART 210—REGULATION J
(COLLECTION OF CHECKS AND
OTHER ITEMS BY FEDERAL RESERVE
BANKS AND FUNDS TRANSFERS
THROUGH FEDWIRE)
3. Subpart B is revised to read as
follows:
Subpart B— Fund Transfers Through
Fedwire
210.25 Authority, purpose, and scope.
210.28 Definitions.
210.27 Reliance on identifying number.
210.28 Agreem ent of sender.
210.29 Agreem ent of receiving bank.
210.30 Paym ent orders.
210.31 Paym ent by a Federal Reserve Bank
to a receiving bank or beneficiary.
210.32 Federal Reserve Bank liability;
paym ent of interest.
Appendix A to Subpart B— Commentary
Appendix B to Subpart B— Article 4A, Funds
T ransf ers

Subpart B—Funds Transfers Through
Fedw ire
§210.25 Authority, purpose, and scope.

(a) Authority and purpose. This
subpart provides rules to govern funds
transfers through Fedwire. and has been
issued pursuant to the Federal Reserve
Act—section 13 (12 U.S.C. 342),
paragraph (f) 'of section 19 (12 U.S.C.
464), paragraph 14 of section 16 (12
U.S.C. 248(o)j, and paragraphs (i) and (j)
of section 11 (12 U.S.C. 248(i) and (j))—
and other laws and has the force and
effect of federal law. This Subpart is not
a funds-transfer system rule as defined
in Section 4A-501(b) of Article 4A.

(b) S co p e. (1) This subpart
incorporates the provisions of Article 4A
set forth in appendix B to this subpart.
In the event of an inconsistency
between the provisions of the sections
of this subpart and appendix B, to this
subpart, the provisions of the sections of
this subpart shall prevail.
(2) Except as otherwise provided in
paragraphs (b)(3) and (b)(4) of this
section, this Subpart governs the rights
and obligations of:
■(i) Federal Reserve Banks sending or
receiving payment orders;
(ii) Senders that send payment orders
directly to a Federal Reserve Bank;
(iii) Receiving banks that receive
payment orders directly from a Federal
Reserve Bank;
(iv) Beneficiaries that receive payment
for payment orders sent to a Federal
Reserve Bank by means of credit to an
account maintained or used at a Federal
Reserve Bank; and
(v) Other parties to a funds transfer
any part of which is carried out through
Fedwire to the same extent as if this
subpart were considered a fundstransfer system rule under Article 4A.
(3) This subpart governs a funds
transfer that is sent through Fedwire, as
provided in paragraph (b)(2) of this
section, even though a portion of the
funds transfer is governed by the
Electronic Fund Transfer Act, but the
portion of such funds tranfer that is
governed by the Electronic Fund
Transfer Act is not governed by this
subpart.
(4) In the event that any portion of this
Subpart establishes rights or obligations
with respect to the availability of funds
that are also governed by the Expedited
Funds Availability Act or the Board’s
Regulation CC, Availability of Funds
and Collection of Checks, those
provisions of the Expedited Funds
Availability Act or Regulation CC shall
apply and the portion of this Subpart,
including Article 4A as incorporated
herein, shall not apply.
(c) Operating Circulars. Each Federal
Reserve Bank shall issue an Operating
Circular consistent with this Subpart
that governs the details of its fundstransfer operations and other matters it
deems appropriate. Among other things,
the Operating Circular may: set cut-off
hours and funds-transfer business days;
address available security procedures;
specify format and media requirements
for payment orders; identify messages
that are not payment orders; and impose
charges for funds-transfer services,
(d) Govenment senders, receiving
b a n k s, and beneficiaries. Except as
otherwise expressly provided by the
statutes of the United States, the parties




specified in paragraph (b)(2)(ii)—(v) of
this section include:
(1) A department, agency,
instrumentality, independent
establishment, or office of the United
States, or a wholly-owned or controlled
Government corporation;
(2) An international organization:
(3) A foreign central bank; and
(4) A department, agency,
instrumentality, independent
establishment, or office of a foreign
government, or a wholly-owned or
controlled corporation of a foreign
government
§ 210.26 Definitions.
As used in this subpart the following
definitions apply:
(a) A r tic le 4A means article 4A of the
Uniform Commercial Code as set forth
in appendix B of this subpart.
(b) As of adjustment means a debit or
credit, for reserve or clearing balance
maintenance purposes only, applied to
the reserve or clearing balance of a
bank that either sends a payment order
to a Federal Reserve Bank, or that
receives a payment order from a Federal
Reserve Bank, in lieu of an interest
charge or payment
(c) Automated clearing bouse transfer
means any transfer designated as an
automated clearing house transfer in a
Federal Reserve Bank Operating
Circular.
(d) Beneficiary’s bank has the same
meaning as in Article 4A, except that
(1) A Federal Reserve Bank need not
be identified in the payment order in
order to be the beneficiary’s bank; and
(2) The term includes a Federal
Reserve Bank when that Federal
Reserve Bank is the beneficiary of a
payment order.
(e) Fedwire is the funds-transfer
system owned and operated by the
Federal Reserve Bank that is used
primarily for the transmission and
settlement of payment orders governed
by this Subpart. Fedwire does not
include the system for making
automated clearing house transfers.
(f) Interdistrict transfer means a funds
transfer involving entries to account
maintained at two Federal Reserve
Banks.
(g) Intradistrict transfer means a
funds transfer involving entries to
accounts maintained at one Federal
Reserve Bank.
(h) Off-line bank means a bank that
transmits payment orders to and
receives payment orders from a Federal
Reserve Bank by telephone orally or by
other means other than electronic data
transmission.

12

(i) P a y m e n t o r d e r has the same
meaning as in Article 4A, except that
the term does not include automated
clearing house transfers or any
communication designated in a Federal
Reserve Bank Operating Circular issued
under this Subpart as not being a
payment order.
(j) S e n d e r's c c c o u n t, r e c e iv in g b a n k 's
a cc o u n t, and b e n e fic ia r y 's a c c o u n t
mean the reserve, clearing, or other
funds deposit account at a Federal
Reserve Bank maintained or U3ed by the
sender, receiving bank, or beneficiary,
respectively.
(k) S e n d e r 's F e d e r a l R e s e r v e B a n k
and r e c e iv in g b a n k 's F e d e r a l P reserve
B a n k mean the Federal Reserve Bank at
which the sender or receiving bank,
r e s p e c t iv e l y , m a i n t a i n s or uses an
a c c o u n t.
§ 210.27 Reliance on identifying number.
(a) R e lia n c e b y a F e d e r a l R e s e r v e
B o n k on n u m b e r to id e n ti f y an
in te r m e d ia r y b a n k o r b e n e f ic ia r y ’s
b a n k . A Federal Reserve Bank may rely

on the number in a payment order that
identifies the intermediary bank or
beneficiary’s bank, even if it identifies a
bank different from the bank identified
b / name in the payment order, if the
Federal Reserve Bank does not know of
such an inconsistency in identification.
A Federal Reserve Bank has no duty to
detect any such inconsistency in
identification.
(b) R e lia n c e b y a F e d e r a l P reserve
B a n k on n u m b e r to id e n ti f y b e n e fic ia r y ,
r Federal Reserve Bank, acting as a

beneficiary’s bank, may rely on the
r umber in a payment order that
identifies the beneficiary, even if it
identifies a person different from the
person identified by name in the
payment order, if the Federal Reserve
Eank does not know of such an
irconsistency in identification. A
Federal Reserve Bank has no duty to
detect any such inconsistency in
identification.
§ 110.28 Agreement of sender.

(a) P a y m e n t o f s e n d e r ’s o b lig a tio n to
c F e d e ra l R e s e r v e B an k. A sender (oth
than a Federal Reserve Bank), by
maintaining or using an account with a
Federal Reserve Bank, authorizes the
s nder’s Federal Reserve Bank to obta:
payment for the sender’s payment
c ders by debiting the amount of the
payment order from the sender’s
account.
(b) O v e r d r a fts . (1) A sender does no
have the right to an overdraft in the
sender’s account. In the event an
o rerdraft ia created, the overdraft sha
be due and payable immediately
without the need for a demand by the

Federal Reserve Bank, at the earliest of
the following times:
(1) At the end of the funds-transfer
business day;
(ii) At the time the Federal Reserve
Eank, in its sole discretion, deems itself
insecure and gives notice thereof to the
sender; or
(iii) At the time the sender suspends
payments or is closed.
(2) The sender shall have in its
account, at the time the overdraft is due
and payable, a balance of actually and
finally collected funds sufficient to cover
the aggregate amount of all its
obligations to the Federal Reserve Bank,
whether the obligations result from the
execution of a payment order or
otherwise.
(3) To secure any overdraft, as well as
any other obligation due or to become
due to its Federal Reserve Bank, each
sender, by sending a payment order to a
Federal Reserve Bank that is accepted
by the Federal Reserve Bank, grants to
the Federal Reserve Bank a security
interest in all of the sender’s assets in
the possession of, or held for the
account of, the Federal Reserve Bank.
The security interest attaches when an
overdraft, or any other obligation to the
Federal Reserve Bank, becomes due and
payable.
(4) A Federal Reserve Bank may take
any action authorized by law to recover
the amount of an overdraft that is due
and payable, including, but not limited
to, the exercise of rights of set off, the
realization on any available collateral,
and any other rights it may have as a
creditor under applicable law.
(c)
R eview of paym ent orders. A
sender, by sending a payment order to a
Federal Reserve Bank, agrees that for
the purposes of sections 4A-204(a) and
4A-304 of Article 4A, a reasonable time
to notify a Federal Reserve Bank of the
relevant facts concerning an
unauthorized or erroneously executed
payment order is within 30 calendar
days after the sender receives notice
that the payment order was accepted or
executed, or that the sender’s account
was debited with respect to the payment
c rder.
§ 210.29

Agreement of receiving bank.

(a) Payment. A receiving bank (other
than a Federal Reserve Bank) that
receives a payment order from its
Federal Reserve Bank authorizes that
Federal Reserve Bank to pay for the
payment order by crediting the amount
of the payment order to the receiving
bank’s account.
(b) Off-line banks. An off-line bank
that does not expressly notify its
Federal Reserve Bank in writing that it
maintains an account for another bank




warrants to that Federal Reserve Bank
that the offline bank does not act as an
intermediary bank or a beneficiary’s
bank with respect to payment orders
received through Fedwire for a
beneficiary that is a bank.
§ 210.30

Payment orders.

(a) Rejection. A sender shall not send
a payment order to a Federal Reserve
Bank unless authorized to do so by the
Federal Reserve Bank. A Federal
Reserve Bank may reject, or impose
conditions that must be satisfied before
it will accept, a payment order for any
reason.
(b) Selection of an intermediary bank.
For an interdistrict transfer, a Federal
Reserve Bank is authorized and directed
to execute a payment order through
another Federal Reserve Bank. A sender
shall not send a payment order to a
Federal Reserve Bank that requires the
Federal Reserve Bank to issue a
payment order to an intermediary bank
(other than a Federal Reserve Bank)
unless that intermediary bank is
designated in the sender’s payment
order. A sender shall not send to a
Federal Reserve Bank a payment order
instructing use by a Federal Reserve
Bank of a funds-transfer system or
means of transmission other than
Fedwire, unless the Federal Reserve
Bank agrees with the sender in writing
to follow such instructions.
(c) Same-day execution. A sender
shall not issue a payment order that
instructs a Federal Reserve Bank to
execute the payment order on a fundstransfer business day that is later than
the funds-transfer business day on
v. hich the order is received by the
Federal Reserve Bank, unless the
Federal Reserve Bank agrees with the
sender in writing to follow such
instructions.
§ 210.31 Payment by a Federal Reserve
Bank to a receiving bank or beneficiary.

(a) Payment to a receiving bank.
Payment of a Federal Reserve Bank’s
obligation to pay a receiving bank (other
than a Federal Reserve Bank) occurs at
the earlier of the time when the amount
of the payment order is credited to the
receiving bank’s account or when the
payment order is sent to the receiving
bank.
(b) Payment to a beneficiary. Payment
by a Federal Reserve Bank to a
beneficiary of a payment order, where
the Federal Reserve Bank is the
beneficiary’s bank, occurs at the earlier
of the time when the amount of the
payment order is credited to the
beneficiary’s account or when notice of
the credit is sent to the beneficiary.

13

5210.32 F ed eral R e se rv e Bank liability;
paym ent of in te rest.
(a) Damages. In connection with its
handling of a payment order under this
subpart, a Federal Reserve Bank shall
not be liable to a sender, receiving bank,
beneficiary, or other Federal Reserve
Bank, governed by this subpart, for any
damages other than those payable under
Article 4A. A Federal Reserve Bank
shall not agree to be liable to a sender,
receiving bank, beneficiary, or other
Federal Reserve Bank for consequential
damages under section 4A-305(d) of
Article 4A.
(b) Payment of interest. (1) A Federal
Reserve Bank, in its discretion, may
satisfy its obligation, or that of another
Federal Reserve Bank, to pay
compensation in the form of interest
under Article 4A by—
(1) Providing an as of adjustment to its
sender, its receiving bank, or its
beneficiary, as provided in the Federal
Reserve Bank's Operating Circular, in an
amount equal to the amount on which
interest is to be calcuated multiplied by
the number of days for which interest is
to be calculated; or
(ii) Paying compensation in the form
of interest to its sender, its receiving
bank, its beneficiary, or another party to
the funds transfer that is entitled to such
payment, in an amount that is calculated
in accordance with section 4A-506 of
Article 4A.
(2) If the sender or receiving bank that
is the recipient of an as of adjustment or
an interest payment is not the party
entitled to compensation under Article
4A, the sender or receiving bank shall
pass through the benefit of the as of
adjustment or interest payment by
making an interest payment, as of the
day the as of adjustment or interest
payment is effected, to the party entitled
to compensation. The interest payment
that is made to the party entitled to
compensation shall not be less than the
value of the as of adjustment or interest
payment that was provided by the
Federal Reserve Bank to the sender or
receiving bank. The party entitled to
compensation may agree to accept
compensation in a form other than a
direct interest payment, provided that
such an alternative form of
compensation is not less than the value
of the interest payment that otherwise
w'ould be made.
(c) Nonwaiver of right of recovery.
Nothing in this subpart or any Operating
Circular issued hereunder shall
constitute, or be construed as
constituting, a waiver by a Federal
Reserve Bank of a cause of action for
recovery under any applicable law of
mistake and restitution.

Appendix A to Subpart B— Com mentary

them if this subpart were a "funds-transfer
system rule" under Article 4A that selected
subpart B of this part as the governing law.
(2) The scope of the applicability of a
funds-transfer system rule under Article 4A is
specified in section 4A-501(b), and the scope
of the choice of law provision is specified in
section 4A-507[c). Under section 4A-507(c), a
choice of law provision is binding on the
participants in a funds-transfer system and
certain other parties having notice that the
funds-transfer system might be used for the
funds transfer and of the choice of law
S e c t i o n 2 1 0 . 2 5 — Authority. P u r p o s e , a n d
provision. The Uniform Commercial Code
Scope
provides that a person has notice when the
(a) Authority and purpose. Section
person has actual knowledge, receives
210.25(a) states that the purpose of subpart B notification or has reason to know from all
of this pa*"t is tc provide rules to govern funds the facts and circum stances know n to the
transfers through Fed wire and recites the
person at the time in question. (See UCC § 1Board's rulem aking authority for this subpart. 201(25).) However, under sections 4A-507(b)
Subpart B of this part is federal law and is
and 4A-507(d), a choice of law by agreem ent
not a "funds-transfer system rule,” as defined of the parties takes precedence over a choice
in section 4A-501(b) of A rticle 4A, Funds
of law m ade by funds-transfer system rule.
T ransfers, of the Uniform Com m ercial Code
(3) If originators, receiving banks, and
(UCC), as set forth in appendix B of this
beneficiaries that are not in privity with a
subpart. C ertain provisions of Article 4A m ay Federal Reserve Bank have the notice
not be varied by a funds-transfer system rule, contem plated by section 4A-507(c) or if those
but under section 4A-107, regulations of the
parties agree to be bound by subpart B of this
Board and O perating Circulars of the Federal part, subpart B of this p art generally would
Reserve Banks supersede inconsistent
apply to paym ent orders betw een those
provisions of A rticle 4A to the extent of the
remote parties, including participants in other
inconsistency. In addition, regulations of the
funds-transfer system s. For exam ple, a funds
Board may preem pt inconsistent provisions
transfer m ay be sent from an originator’s
of state law. Accordingly, subpart B of this
bank through a funds-transfer system other
part supersedes or preem pts inconsistent
than Fedwire to a receiving bank which, in
provisions of sta te law . It does not affect
turn, sends a paym ent order through Fedwire
state law governing funds transfers that does
to execute the funds transfer. Similarly, a
not conflict w ith the provisions of subpart B
Federal Reserve Bank m ay execute a
of this p a r t such a9 Article 4A, a s enacted in
paym ent order through Fedwire to a receiving
any state, as it applies to p arties to funds
bank that sends it through a funds-transfer
transfers through Fedw ire w hose rights are
system other than Fedw ire to a beneficiary’s
not governed by subpart B of this p a r t
bank. In the first exam ple, if the originator’s
(b) Scops. (1) Subpart B of this part
bank has notice that Fedw ire m ay be used to
incorporates the provisions of A rticle 4A set
effect part of the fnnds transfer, the sending
forth in appendix B of this s u b p a rt The
of the paym ent order through the other fundsprovisions set forth expressly in the sections
transfer system to the receiving bank will be
of subpart B of this part supersedes or
governed by subpart B of this part unless the
preem pt any inconsistent provisions of
parties to the paym ent order have agreed
Article 4A as set forth in appendix B of this
otherw ise. In the second exam ple, if the
subpart or as enacted in any state. The
beneficiary's bank has notice that Fedwire
official com m ents to Article 4A are not
m ay be used to effect part of the funds
incorporated in subpart B of this part or this
Com m entary to subpart B of this p a r t but the transfer, the sending of the paym ent order to
the beneficiary’s bank through the other
official com m ents m ay be useful in
funds-transfer system will be governed by
interpreting A rticle 4A. Because section 4A subpart B of this p art unless the parties have
105 refers to other provisions of the Uniform
Com mercial Code, e.g„ definitions In Article 1 agreed otherw ise. In both cases, the other
funds-transfer system ’s rules would also
of the U C C these otheT provisions of the
apply to, at a minimum, the portion of these
UCC, as approved by the N ational
funds transfers going through that fundsConference of Com m issioners on Uniform
transfer system . Because subpart B of this
State Laws and the A m erican Law Institute,
p art is federal law, to the extent of any
from time to time, are a b o incorporated in
inconsistency, subpart B of this p art will take
subpart B of this part. S ubpart B of this part
precedence over any funds-transfer system
applies to any p arty to a Fedw ire funds
rule applicable to the rem ote sender or
transfer that is in privity w ith a Federal
Reserve Bank. T hese p arties include a sender receiving bank or to a Federal Reserve Bank.
If rem ote p arties to a funds transfer, a portion
(bank or nonbank) that sends a paym ent
of which is sent through Fedwire. have
order directly to a Federal R eserve Bank, a
receiving bank that receives a paym ent order expressly selected by agreem ent a law other
than subpart B of this p art under section 4A directly from a Federal R eserve Bank, and a
beneficiary that receives credit to an account 507(b), subpart B of this part would not take
that it uses or m aintains a t a Federal Reserve precedence over the choice of law m ade by
the agreem ent even though the rem ote parties
Bank for a paym ent order sent to a Federal
had notice that Fedw ire m ay be used and of
Reserve Bank. O ther parties to a funds
the governing law. (Sae 4A-507(d)). In
transfer are covered by this subpart to the
addition, subpart B of this part w ould not
sam e extent th at this subpart would apply to
The Com m entary provides background
m aterial to explain the intent of the Board of
G overnors of the Federal Reserve System
(Board) in adopting a particular provision in
the subpart and to help readers interpret that
provision. In some comments, exam ples are
offered. The Com m entary constitutes an
official Board interpretation of subpart B of
this part. Com m entary is not provided for
every provision of subpart B of this part, as
some provisions are self-explanatory.




14

<• . p'y to a funds transfer sent through another
f nds-transfor system w here no Federal
Reserve Bank handles the funds transfer,
e ■en though settlem ent for the funds transfer
is made by m eans of a separate net
s ttlerr.ent or funds transfer through Fedwire.
(4) Under section 4A-1Q8, A rticle 4A does
r o t apply to a funds transfer, any part of
v hiuh is governed by the Electronic Fund
T ransfer Act (15 U S.C. 1693 et seq). Fedw ire
Grids transfers to or from consum er accounts
t<re exem pt from the Electronic Fund T ransfer
i° ct and Regulation E (12 CFR port 20;:). A
1 ,nds transfer from a consum er originator or
a funds transfer to a consum er beneficiary
could be carried out in part through Fedwire
end in part through an autom ated c le a rn g
house or other m eans th at is subject to the
I ectronic Fund T ransfer Act or Regulation E.
in there cases, subpart B of this part would
not govern the portion of the funds transfer
that is governed by the Electronic Fund
T ransfer Act or Regulation E. (See
Com m entary to § 210.2S(ij "paym ent order’’.)
(5) Finally, section 4A-404(a) provides that
a beneficiary's bank is obligated to pay the
am ount of a paym ent order to the beneficiary
on the paym ent date unless accepsance of the
paym ent order occurs on the paym ent date
after the close of the funds-transfer business
day of the bank. The Expedited Funds
A -ailability Act provides that funds received
by a bank by w ire transfer shall be available
f ;r w ithdraw al not later than than the
banking day after the business day on w hich
f- :ch funds are received (12 U.S.C. 4002(a)).
3 hat Act also preem pts any provision of state
b w that w as not effective on Septem ber 1,
1 589 that is inconsistent w ith that Act or its
implementing Regulation CC (12 CFR p art
7.9). Accordingly, the E xpedited Funds
A vailability Act and Regulation CC m ay
p'eem p t section 4A-404(a) as enacted in any
& ate. In order to ensure that section 4 A 404(a), or other provisions of Article 4A, as
incorporated in subpart B of this p a r t do not
C ke precedence over provisions of the
E xpedited Funds A vailability A c t this
section provides that w here subpart B of this
part establishes rights or obligations that are
also governed by the E xpedited Funds
A vailability Act or Regulation CC, the
Expedited Funds A vailability Act or
Regulation CC provision shall apply and
subpart B of this p art shall not apply.
(c) Operating Circulars. The Federal
Reservo Banks issue O perating Circulars
consistent with this S ubpart that contain
additional provisions applicable to paym ent
orders sent through Fedw ire. U nder section
4A-107, these O perating Circulars supersede
inconsistent provisions of Article 4A, as set
forth in appendix B and as enacted in any
p’ate. These O perating Circulars ere not
funds-transfer system rules, but, by their
term s, they are binding on all p arties covered
by this Subpart.
(d) Government senders, receiving banks,
and beneficiaries. This section clarifies that
unless a statute of the U nited S tates provides
otherw ise, subpart B of this p art applies to
governm ental entities, dom estic or foreign,
including foreign central banks as specified
in paragraph (b)(1) of thi3 section.

~ 'd : on 21C 2 8 —D pf ir Ilians
\rtic le 4A defines m any term s fe.g.,
Beneficiary," “interm ediary bank,”
receiving bank," "security procedure”) used
r thi3 subpart. These term s are defined or
isted in sections 4A-1G3 through 4A-1G5.
These terms, such as the term ‘ b ank”
efined in section 4A-105(d)f?.)), may differ
, cm com parable term s in subpart A of this
. art. As subpart B of th;3 part incorporates
.nsiatent provisions of Article 4A, it
r corporates these definitions unless these
?rms are expressly def.ned otherw ise in
ubpart B of this part. This Subpart m odifies
ue definitions of two Article 4A term s,
beneficiary’s ban k ” and “paym ent order."
'h is subpart ai30 defines term s not defined in
Article 4A.
(a) Article 4A. .Article 4A m eans the
Version of that article of the Uniform
Commercial Code set forth in appendix B of
his subpart It does not refer to the law of
ny particular state unless the context
ndicates otherw ise. Subject to the express
rovesions of this Subpart, this version of
Article 4A is incorporated into this Subpart
rid m ade federal law for transactions
overed by this Subpart.
(b ) As o f adjustments. As of adjustments
re memorandum items that affect a bank’s
cserve or clearing balance for the purpose of
reeling the required balance, but do not
^present funds that car be used for other
urposes. As discussed in the Commentary to
210.32(b). the Federal Reserve Banks

enerally provide as of adjustm ents as a
leans of effecting interest paym ents or
barges.
(d) Beneficiary’s bank. The definition of
beneficiary’s b a n k ” in subp art B of this p art
iffers from the section 4A-103(a)(3)
efiniiion. The subpart B definition clarifies
lat w here a Federal Reserve Bank functions
s the beneficiary’s bank, it need not be
ientified in the paym ent order as the
eneficiary’s bank and that a Federal
eserve Bank th at receives a paym ent order
s beneficiary is also the beneficiary’s bank
nth respect to that paym ent order.
(e) Fedwire. Fedwire refers to the fundsansfer system owned and operated by the
ederal Reserve Banks that is governed by
lis Subpart. The term does not refer to any
articular computer, telecommunications
icility, or funds transfer, but to the system
s a whole, which may include transfers by
dephone or by written instrument in
articular circumstances. Fedwire does not
tclude the system used for automa'.ed
earing house transfers.
(h) Off-line bank. Most Fedwire payment
•ders are transmitted electronically from a
mder to a Federal Reserve Bank or from a
?deral Reserve Bank to a receiving bank,
anks transmitting payment orders to Federal
eserve Banks electronically are often
ferred to as on-line banks. Some Fedwire
articipants, however, transmit payment
ders to a Federal Reserve Bank or receive
iyment orders from a Federal Reserve Bank
■ally by telephone, or, in unusual
rcumstunces, in writing. A bank that does
)t use either a terminal or a computer that
iks it electronically to a terminal or
imputer at its Federal Reserve Bank to send
iyment orders through Fedwire is an off-line
ink.




(ij Payment order. (1) The- definition of
"paym ent order" in subpart B of this part
differs from the section 4A-103(a)(l)
definition. The subpart B definition clarifies
that, for the purposes of subpart B of this
part, autom ated clearing house transfers and
c ertain m essages that are transm itted through
F :dwire are not paym ent orders. Federal
Reserve Banks and banks participating in
Fedw ire send various types of m essages,
relating to paym ent orders or to other
m atters, through Fedwire that are not
intended to be paym ent orders. Under the
subpart B definition, these m essages, and
m essages involved w ith autom ated clearing
house transfers, are not "paym ent orders”
and therefore are not governed by this
Subpart. The O perating Circulars of the
Federal Reserve Banks specify those
m essages that m ay be transm itted through
Fedwire but that are not paym ent orders.
(2) In some cases, m essages sent through
Fedwire, such as certain requests for credit
transfer, m ay be paym ent orders under
Article 4A, but are not treated as paym ent
orders under subpart B because they are not
an instruction to a Federal Reserve Bank to
pay money.
(3) This subpart and Article 4A govern a
paym ent order even though the originator's or
beneficiary's account m ay be a consum er
account established prim arily for personal,
family, or household purposes. U nder section
4A-108, Article 4A does not apply to a funds
transfer any p art of w hich is governed by the
Electronic Fund T ransfer Act. T hat Act, and
Regulation E implementing it, do not apply to
funds transfers through Fedwire (see 15
U.S.C. 1693a(6)(B) and 12 CFR 205.3(b)). Thus,
this Subpart applies to all funds transfers
through Fedw ire even though som e such
transfers involve originators or beneficiaries
that are consum ers. (See also § 210.25(b) and
accom panying Com mentary.)

paym ent order as identifying the appropriate
beneficiary, even if the paym ent order
identifies another beneficiary by name,
provided that the beneficiary’s bank does not
know of the inconsistency. Under section 4A 207(c)(2), if the originator is not a bank, an
originator is not obliged to pay for a paym ent
order if the originator did not have notice that
the beneficiary's bank might rely on the
identifying num ber and the person paid on
the basis of the identifying num ber w as not
entitled to receive paym ent. This section of
Subpart B provides this notice to entities that
are not banks, such as the D epartm ent of the
Treasury, that are originators of paym ent
orders sent directly by the originators to a
Federal Reserve Eank, w here that Federal
Reserve Bank or another Federal Reserve
Bank is the beneficiary’s bank (see also
section 4A-402(b), providing that a sender
m ust pay a beneficiary’s bank for a paym ent
order accepted by the beneficiary’s bank).

Section 210.28—Agreement o f Sender
(a) Payment o f sender’s obligation to a
Federal Reserve Bank. W hen a sender issues

a paym ent order to a Federal Reserve Bank
and the Federal Reserve Bank issues a
conforming order im plem enting the sen d er’s
paym ent order, under section 4A-403, the
sender is indebted to the Federal Reserve
Bank for the am ount of the paym ent order. A
sender, other than a Federal R eserve Bank,
that m aintains or uses an account at a
Federal Reserve Bank authorizes the Federal
Reserve Bank to debit that account so that
the Federal Reserve Bank can obtain
paym ent for the paym ent order.
(b) Overdrafts. (1) In some cases, debits to
a sender’s account will create an overdraft in
the sender’s account. The Board and the
Federal Reserve Banks have established
policies concerning w hen a Federal Reserve
Bank will perm it a bank to incur an overdraft
in its account at a Federal R eserve Bank.
T hese policies do not give a bank or other
Section 210.27—Reliance on Identifying
sender a right to an overdraft in its account.
Number
Subpart B clarifies that a sender does not
(a) Reliance by a Federal Reserve Bank on have a right to such an overdraft. If an
number to identify intermediary bank or
arises, it becom es im m ediately due
beneficiary's bank. Section 4A-208 provides overdraft
and payable at the earliest of: The end of the
that a receiving bank, such as a Federal
funds-transfer business day of the Federal
Reserve Bank, m ay rely on the routing
Reserve Bank: the time the Federal Reserve
num ber of an interm ediary bank or the
Bank in its sole discretion, deem9 itself
beneficiary’s bank specified in a paym ent
insecure and gives notice to the sender; or the
order as identifying the appropriate
time that the sender suspends paym ents or is
interm ediary bank or beneficiary’s bank,
closed by governm ental action, such as the
even if the paym ent order identifies another
appointm ent of a receiver. In some cases, a
bank by name, provided that the receiving
Federal Reserve Bank extends its Fedw ire
bank does not know of the inconsistency.
operations beyond its cut-off hour for that
U nder section 4A-208(b)(2), if the sensor of
funds-transfer business day. For the purposes
the paym ent order is not a bank, a receiving
of this section, unless otherw ise specified by
bank m ay rely on the num ber only if the
the Federal Reserve Bank m aking such an
sender had notice before the receiving bank
extension, an overdraft becom es due and
accepted the sender’s order that the receiving payable at the end of the extended operating
bank might rely on the num ber. This section
hours. An overdraft becom es due and
provides this notice to entities that are not
payable prior to a Federal Reserve Bank’s
banks, such as the D epartm ent of the
cut-off hour if the Federal R eserve Bank
T reasury, that send paym ent orders directly
deem s itself insecure and gives notice to the
to a Federal R eserve Bank.
sender. Notice that the Federal Reserve Bank
(b) Reliance by aFederal Reserve Bank on deem s itself insecure m ay be given in
number to identify beneficiary. Section 4 A - accordance w ith the provisions on notice in
207 provides that a beneficiary’s bank, such
section 1-201(27) of the UCC, in accordance
as a Federal R eserve Bank, m ay rely on the
w ith any other applicable law or agreem ent,
num ber identifying a beneficiary, such as the or by any other reasonable m eans. An
beneficiary’s account num ber, specified in a
overdraft also becom es due and payable at

15

the time that a bank is closed or suspends
w ith the Federal Reserve Bank; therefore,
paym ents. For exam ple, an overdraft
paym ent orders or advises are transm itted
becom es due and payable if a receiver is
either by telephone on the day the paym ent
appointed for the bank or the bank is
order is received by the receiving ban k ’s
prevented from making paym ents by
Federal Reserve Bank, or sent by courier or
governm ental order. The Federal Reserve
mail along w ith the off-line bank's daily
Bank need not m ake dem and on the sender
account statem ent, on the funds-transfer
for the overdraft to becom e due and payable. business day following the day the paym ent
(2)
A sender m ust cover any overdraft and order is received by the off-line bank’s
any other obligation of the sender to the
Federal Reserve Bank.
Federal Reserve Bank by the time the
(2) U nder section 4A-302(a)(2), a Federal
overdraft becom es due and payable. By
Reserve Bank m ust transm it paym ent orders
sending a paym ent order to a Federal
at a time and by m eans reasonably necessary
Reserve Bank, the sender grants a security
to allow paym ent to the beneficiary on the
interest to the Federal Reserve Bank in any
paym ent date, or as soon thereafter as is
assets of the sender held by, or for the
feasible. Therefore, w here an off-line
account of, the Federal R eserve Bank in order receiving bank is an interm ediary bank or
to secure all obligations due or to becom e due
beneficiary’s bank in a paym ent order, its
to the Federal Reserve Bank. The security
Federal Reserve Bank attem pts to transm it
interest attaches w hen the overdraft, or other
the paym ent order to the off-line bank by
obligation of the sender to the Federal
telephone on the day the paym ent order is
Reserve Bank, becom es due and payable. The
received by the Federal Reserve Bank. A
Security interest does not apply to assets
Federal Reserve Bank can generally identify
held by the sender as custodian or trustee for
these paym ent orders from the type code
the sender’s custom ers or third parties. Once
designated in the paym ent order.
an overdraft is due and payable, a Federal
(3) U nder section 4A-404(b), if a paym ent
Reserve Bank m ay exercise its right of set off,
order instructs paym ent to the account of the
liquidate collateral, or take other sim ilar
beneficiary, the beneficiary’s bank m ust
action to satisfy the overdrafting b a n k ’s
obligation ow ed to the Federal R eserve Bank. notify the beneficiary of the receipt of a
ent order before m idnight of the next
(c)
Review o f payment orders. (1) U nder paym
funds-transfer business day following the
section 4A-204, a receiving bank is required
paym ent date. W here an off-line bank is the
to refund the principal am ount of an
beneficiary of a paym ent order, telephone
unauthorized paym ent order th at the sender
w as not obliged to pay, together w ith interest notice by a Federal R eserve Bank to the off­
on the refundable am ount calculated from the line bank of the receipt of the order is not
required by A rticle 4A because the Federal
date that the receiving bank received
paym ent to the d ate of the refund. The sender Reserve Bank sends notice to the off-line
is not entitled to com pensation in the form of bank by courier or mail, along w ith its daily
account statem ent, on the day after the
interest if the sender fails to exercise
ordinary care to determ ine th at the order w as paym ent order is received by its Federal
R eserve Bank. Paym ent orders for w hich an
not authorized and to notify the receiving
bank w ithin a reasonable period of time after off-line ban k is the beneficiary of the order
the sender receives a notice th at the paym ent are generally designated as settlem ent
transactions.
order w a s accepted or th at the sender’s
(4) If an off-line receiving bank maintains
account w a s debited w ith respect to the
an account for another bank, the off-line
order. Similarly, under section 4A-304, if a
bank may receive payment orders designated
sender of a paym ent order that w as
as settlement transactions in its capacity as
erroneously executed does not notify the
beneficiary's bank or intermediary bank. A
bank receiving the paym ent order w ithin a
Federal Reserve Bank cannot readily
reasonable time, the bank is not liable to the
distinguish these payment orders from
sender for com pensation in the form of
settlement transactions for which the off-line
interest on any am ount refundable to the
bank is the beneficiary of the order. If an off­
sender. Section 210.28(d) establishes 30
line bank notifies its Federal Reserve Bank
calen d ar days as the reasonable period of
that it maintains an account for another bank,
tim e for the purposes of these provisions of
the Federal Reserve Bank will attempt to
A rticle 4A.
telephone the off-line bank with respect to all
(2) Section 4A-505 provides that a
custom er m ust object to a debit to its account settlement transactions received by such
by a receiving b an k w ithin one y ear after the bank, whether the off-line bank is the
beneficiary, the beneficiary's bank, or an
custom er received notification reasonably
intermediary bank in the payment order.
identifying the paym ent order. S ubpart B of
Under this section, an off-line bank that does
this p a rt does not vary this one-year period.

not expressly notify its Federal Reserve Bank

Section 210.29—Agreement o f Receiving
in writing that it maintains an account for
Bank.
another bank warrants to that Federal
(b) Off-line banks. (1) Generally, a n on-line Reserve Bank that it does not act as an
bank receiving paym ent orders or advices of
credit for paym ent orders from a Federal
R eserve Bank receives the paym ent orders or
advices electronically a short tim e a fter the
corresponding paym ent orders are received
by the on-line b an k 's Federal R eserve Bank.
An off-line bank receiving paym ent orders or
advises of credit from a Federal Reserve
Bank does not have an electronic connection




intermediary bank or a beneficiary’s bank for
a bank beneficiary with respect to payment
orders received through Fedwire

reserve the right to reject or impose
conditions on the acceptance of paym ent
orders for any reason. For exam ple, a Federd*
Reserve Bank might reject or Impose
conditions on accepting a paym ent order
whe.-e a sender does not have sufficient
funds in its account with the Federal Reserve
Bank to cover the am ount of the sender's
paym ent order and other obligations of the
sender due or to becom e due to the Federal
Reserve Bank. A Federal Reserve Bank may
require a sender to execute a w ritten
agreem ent concerning security procedures or
other m atters before the sender m ay send
paym ent orders to the Federal R eserve Bank.
(b) Selection of an intermediary bank. (1)
U nder section 4A-302, if a receiving bank
(other than a beneficiary’s bank), such as a
Federal Reserve Bank, accepts a paym ent
order, it must issue a paym ent order that
com plies w ith the sender’s order. The
sen d er's order m ay include instructions
concerning an interm ediary bank to be used
that m ust be follow ed by a receiving bank
[see section 4A-302(a)(l)). If the sender does
not designate any interm ediary bank in its
paym ent order, the receiving ban k m ay select
an interm ediary bank through w hich the
sender’s paym ent order can be expeditiously
issued to the beneficiary’s bank so long as
the receiving bank exercises ordinary care in
selecting the interm ediary bank [see section
4A-302(b)).
(2) This section provides that in an
interdistrict transfer, a Federal R eserve Bank
is authorized and directed to select another
Federal Reserve Bank as an interm ediary
bank. A sender may, how ever, instruct a
Federal R eserve Bank to use a particular
interm ediary bank by designating th at bank
as the bank to be credited by that Federal
Reserve Bank (or the second Federal Reserve
Bank in the case of an interdistrict transfer)
in its paym ent order, in w hich case the
Federal Reserve Bank w ilt send the paym ent
order to that bank if that bank receives
paym ent orders through Fedwire. A sender
m ay not instruct a Federal Reserve Bank to
use its discretion to select an interm ediary
bank other than a Federal Reserve Bank or
an interm ediary bank designated by the
sender. In addition, a sender m ay not instruc
a Federal Reserve Bank to use a fundstransfer system or m eans of transm ission
other than Fedw ire unless the sender and th<
Federal Reserve Bank agree in w riting to the
use of the funds-transfer system or m eans of
transm ission.
(c) Same-day execution. Generally,
Fedw ire is a sam e-day value transfer system
through w hich funds m ay be transferred fror
the originator to the beneficiary on the sam e
funds-transfer business day. A sender m ay
not send a paym ent order to a Federal
R eserve B ank that specifies an execution
date or paym ent d a te later than the d ay on
w hich the paym ent order is issued, unless tfc
sender of the order and the Federal Reserve
Bank agree in writing to the arrangem ent.

Section 210.31—Payment by a Federal

Reserx'e Bank to aReceiving Bank or
Section 210.30^-Payment Orders
Beneficiary
(a)
Rejection. (1) A sender must make
(a) Payment to areceiving bank. (1) Unde
arrangements with its Federal Reserve Bank
section 4A-402, w hen a Federal R eserve Ba
before it can send payment orders to die
Federal Reserve Bank. Federal Reserve Banks executes a sender’s paym ent order by issuii
16

of a funds transfer. For example, pev merit of
compensation in the form of interest is
required in certain situations pursuant to
sections 4A-204 (relating to refund of
payment and duty of customer to report with
respect to unauthorized payment order), 4A209 (relating to acceptance of payment order),
4A-210 (relating to rejection of payment
order), 4A-304 (relating to duty of sender to
report erroneously executed payment order),
4A-305 (relating to liability for late or
improper execution or failure to execute a
payment order), 4A-402 (relating to
obligation of sender to pay receiving bank),
and 4A-404 (relating to obligation of
beneficiary’s bank to pay and give notice to
beneficiary). Under section 4A-506{a), the
amount of such interest may be determined
by agreement between the sender and
receiving bank or by funds-transfer system
rule. If there is no such agreement, under
section 4A-506(b), the amount of interest is
based on the Federal funds rate. Section
210.32(b) provides two means by which
Federal Reserve Banks may provide
compensation in the form of interest: through
an as of adjustment or through an explicit
(2)
This section on final paym ent does notinterest payment.
apply to settlem ent for paym ent orders
(2) An as of adjustm ent is a memorandum
betw een Federal R eserve Banks. T hese
credit or debit th at is applied to the reserve
a conforming order to a receiving bank that
ecepts the payment order, the Federal
deserve Bank must pay the receiving bank
the amount of the payment order. Section
210.29(a) authorizes a Federal Reserve Bank
to make the payment by crediting the account
at the Federal Reserve Bank maintained or
used by the receiving bank. Section 210.31(a)
provides that the payment occurs when the
receiving bank’s account is credited or when
the payment order is sent by the Federal
Reserve Bank to the receiving bank,
whichever is earlier. Ordinarily, payment will
occur during the funds-transfer business day
a short time after the payment order is
received, even if the receiving bank is an off­
line bank. This credit is final and irrevocable
when made and constitutes final settlement
under section 4A-403. Payment does not
waive a Federal Reserve Bank’s right of
recovery under the applicable law of mistake
and restitution (s e e 5 210.32(c)), affect a
Federal Reserve Bank’s right to appy the
funds to any obligation due or to become due
to the Federal Reserve Bank, or affect legal
process or claims by third parties on the
funds.

paym ent orders are settled by other m eans.
(b)
Payment to a beneficiary. Section
210.31(b) specifies w hen a F ederal Reserve
Bank m akes paym ent to a beneficiary for
w hich It is the b e n e fid a ry ’9 bank. A s in the
case o f paym ent to a receiving bank, this
paym ent occurs a t the earlier of the time that
the Federal R eserve Bank credits the
beneficiary’s account or sen d s notice of the
credit to the beneficiary, and is final and
irrevocable w hen m ade.

Section 210.32—Federal Reserve Bank
Liability; Payment o f Interest
(a) Damages. (1) U nder section 4A-305(d),
dam ages for failure of a receiving bank to
execute a paym ent order th at it w as
obligated to execute by express agreem ent
are lim ited to expenses in the transaction and
incidental expenses and interest and do no!
include additional dam ages, including
consequential dam ages, unless they are
orovided for in an express w ritten agreem ent
of the receiving bank. T his section clarifies
that in connection w ith the handling of
payment orders, Federal R eserve Banks m ay
lot agree to be liable for consequential
iam ages under this provision an d shall not
>e liable for dam ages other than those that
nay be due under A rticle 4A to parties
jovem ed by this su b p a rt Any agreem ent in
tonflict w ith these provisions w ould not be
iffective, because it w ould be in violation of
lubpart E
(2) This section does not affect the ability
»f other parties to a funds transfer to agree to
>e liable for consequential dam ages, the
iability of a Federal R eserve Bank under
ection 4A-404, or the liability to p arties
■ovemed by subpart B for claim s not based
in the handling of a paym ent o rder u nder this
ubpart.
(b) Payment o f interest (1) U nder A rticle
A, a Federal R eserve Bank m ay be required
o pay com pensation in the form of interest to
nother party in connection with its handling




is entitled to com pensation in the form of
interest from a Federal Reserve Bank. The
benefit may be passed on either in the form
of a direct paym ent of interest or in the form
of a com pensating balance, if the party
entitled to interest agrees to accept the other
form of com pensation, and the value of the
com pensating balance is at least equivalent
to the value of the explicit interest that
otherw ise would have been provided.
(c)
Nonwaiver o f right o f recovery. Several
sections of Article 4A allow for a party to a
funds transfer to make a claim pursuant to
the applicable law of m istake and restitution.
Nothing in subpart B of this p art or any
O perating Circular issued under subpart B of
this part w aives any such claim. A Federal
Reserve Bank, however, m ay w aive such a
claim by express w ritten agreem ent in order
to settle litigation or for other purposes.

Appendix B to Subpart B—Article 4A, Funds
Transfers
Part 1— Subject Matter and Definitions
Section 4A-101. Short Title
This Article m ay be cited as Uniform
Com mercial Code— Funds Transfers.
Section 4A-102. Subject M atter

Except as otherw ise provided in section
or clearing balance of the bank that sent the
4A-108, this Article applies to funds transfers
paym ent order to, or received the paym ent
defined in section 4A-104.
order from, a Federal Reserve Bank. Federal
Section 4A-103. Payment Order—Definitions
R eserve Banka generally provide as of
(a) In this Article:
adjustm ents to correct errors and recover
(1) Payment order means an instruction of
float. An a s of adjustm ent differs from a debit
a sender to a receiving bank, transmitted
or credit to an account in that it does not
orally, electronically, or in writing, to pay, or
affect the actual balance of the account; it
to cause another bank to pay, a fixed or
only affects the balance for reserve or
determinable amount of money to a
clearing balan ce com putation purposes.
T hese adjustm ents affect the level of reserve beneficiary if:
(1) The instruction does not state a
or clearing b alances that the bank must fund
by other m eans and are therefore an effective condition to payment to the beneficiary other
than time of payment,
substitute for explicit interest paym ents.
3.
A party th at sent o r received a paym ent (ii) The receiving bank is to be reimbursed
by debiting an account of, or otherwise
order from a Federal R eserve Bank m ay be
unable to m ake use of an as of adjustm ent as receiving payment from, the sender, and
(iii) The instruction is transmitted by the
com pensation in lieu of explicit in te re s t For
sender directly to the receiving bank or to an
exam ple, if the sender or receiving bank is
agent, funds-transfer system, or
not subject to reserve requirem ents or
communication system for transmittal to the
satisfies its reserve requirem ents w ith vault
receiving bank.
cash, the as of adjustm ent could not be used
(2) Beneficiary means the person to be paid
to free other balances for investm ent. A
by the beneficiary's bank.
Federal R eserve Bank may, in its discretion,
(3) ‘‘Beneficiary’s bank" means the bank
provide com pensation by an explicit interest
identified in a payment order in which an
paym ent ra th e r than through an as of
account of the beneficiary is to be credited
adjustm ent. Interest would be calculated in
pursuant
to the order or which otherwise is to
accordance w ith the procedures specified in
make payment to the beneficiary if the order
section 4A-506(b). Similarly, com pensation in
does not provide for payment to an account
the form of explicit interest will be paid to
(4) Receiving bank means the bank to
G overnm ent senders, receiving banks, or
which the sender’s instruction is addressed.
beneficiaries described in § 210.25(d) if they
(5) Sender means the person giving the
are entitled to interest under this subpart. A
instruction to the receiving bank.
Federal R eserve Bank m ay also, in its
(b) If an instruction complying with
discretion, pay explicit interest directly to a
subsection (a)(1) is to make more than one
rem ote party to a Fedwire funds transfer that payment to a beneficiary, the instruction is a
is entitled to interest, rather than providing
separate payment order with respect to each
com pensation to its direct sender or receiving payment
bank.
(c) A payment order is issued when it is
(4)
If a bank that received an as of
sent to the receiving bank.
adjustm ent or explicit interest paym ent is not
Section 4A-104. Funds Transfer—Definitions
the party entitled to interest com pensation
In this Article:
under A rticle 4A, the bank m ust p a ss the
(a)
Funds transfer means the series of
benefit of the as of adjustm ent or explicit
transactions, beginning with the originator's
interest paym ent m ade to it to the party that

17

payment order, made for the purpose of
making payment to the beneficiary of the
order. The term includes any payment order
issued by the originator's bank or an
intermediary bank intended to carry out the
originator’s payment order. A funds transfer
is completed by acceptance by the
beneficiary's bank of a payment order for the
benefit of the beneficiary of the originator's
payment order.
(b) Interm ediary bank means a receiving
bank other than the originator’s bank or the
beneficiary’s bank.
(c) Originator means the sender of the first
payment order in a funds transfer.
(d) Originator's bank means (i) the
receiving bank to which the payment order of
the originator is issued if the originator is not
a bank, or (ii) the originator if the originator
is a bank.
Section 4A-105. Other Definitions

(a) In this Article:
(1) Authorized account means a deposit
account of a customer in a bank designated
by the customer as a source of payment of
payment orders issued by the customer to the
bank. If a customer does not so designate an
account, any account of the customer is an
authorized account if payment of a payment
order from that account is not inconsistent
with a restriction on the use of that account

(2) Bank means a person engaged in the
business of banking and includes a savings
bank, savings and loan association, credit
union, and trust company. A branch or
separate office of a bank is a separate bank
for purposes of this Article.
(3) Customer means a person, including a
bank, having an account with a bank or from
whom a bank has agreed to receive payment
orders.
(4) Funds-transfer business day of a
receiving bank means the part of a day
during which the receiving bank is open for
the receipt processing, and transmittal of
payment orders and cancellations and
amendments of payment orders.
(5) Funds-transfer system means a wire
transfer network, automated clearing house,
or other communication system of a clearing
house or other association of banks through
which a payment order by a bank may be
transmitted to the bank to which the order is
addressed.
(6) Good faith means honesty in fact and
the observance of reasonable commercial
standards of fair dealing.
(7) Prove with respect to a fact means to
meet the burden of establishing the fact
(Section 1-201(8)).
(b) Other definitions applying to this
Article and the sections in which they appear
are:
"Acceptance’*...... -.......
Sec. 4A-209
"Beneficiary"............................... Sea 4A-103
"Beneficiary’s bank"------------ Sec. 4Ar-103
"Executed”.—........
Sec. 4A-301
“Execution date"..... -........
Sec. 4A-301
“Funds transfer"....................... Sec. 4A-104
“Funds-transfer system rule"__ ...Sec. 4A-501
“Intermediary bank"__________ Sea 4A-104
"Originator"..... .......
Sea 4A-104
"Originator’s bank”................. Sea 4A-104
"Payment by beneficiary’s bank to
beneficiary"....................... Sea 4A-405




“Payment by originator to
P art 2— Issu e a n d A c c e p ta n c e o f P a y m e n t
beneficiary”.......................................... Sec.4A-4O0
O rd er
"Payment by sender to receiving
Section 4A-201. Security Procedure
bank”.................................................... Sea4A-403
S e c u rity p ro c e d u re means a procedure
"Payment date”.......................................... Sec.4A-401
established by agreement of a customer and
"Payment order"......................................... Sec.4A-103
a receiving bank for the purpose of (i)
"Receiving bank"........................................Sec.4A-103
verifying that a payment order or
"Security procedure”..................................Sec.4A-201
communication amending or canceling a
payment order is that of the customer, or (ii)
"Sender".................................................. Sec.4A-103
detecting error in the transmission or the
(c)
The following definitions in Article
content of the payment order or
4 apply to this Article:
communication. A security procedure may
"Clearing house"............................... Sec. 4-104 require the use of algorithms or other codes,
"Item”.................................................Sec. 4-104 identifying words or numbers, encryption,
"Suspends payments”..................... Sec. 4-104 callback procedures, or similar security
devices. Comparison of a signature on a
payment order or communication with an
(d) In addition Article 1 contains general
definiiions and principles of construction and authorized specimen signature of the
customer is not by itself a security procedure.
interpretation applicable throughout this
Section 4A-202. Authorized and Verified
Article.
Payment Orders
Section 4A-106. Time Payment Order is
(a) A payment order received by the
Received
receiving bank is the authorized order of the
(a) The time of receipt of a payment order person identified as sender if that person

or communication canceling or amending a
payment order is determined by the rules
applicable to receipt of a notice stated in
Section 1-201(27). A receiving bank may fix a
cut-off time or times on a funds-transfer
business day for the receipt and processing of
payment orders and communications
canceling or amending payment orders.
Different cut-off times may apply to payment
orders, cancellations, or amendments, or to
different categories of payment orders,
cancellations, or amendments. A cut-off time
may apply to senders generally or different
cut-off times may apply to different senders
or categories of payment orders. If a payment
order or communication canceling or
amending a payment order is received after
the close of a funds-transfer business day or
after the appropriate cut-off time on a fundstransfer business day, the receiving bank
may treat the payment order or
communication as received at the opening of
the next funds-transfer business day.
(b) If this Article refers to an execution
date or payment date or states a day on
which a receiving bank is required to take
action, and the date or day does not fall on a
funds-transfer business day, the next day that
is a funds-transfer business day is treated as
the date or day stated, unless the contrary is
stated in this Article.
Section 4A-107. Federal Reserve Regulations
and Operating Circulars
Regulations of the Board of Governors of
the Federal Reserve System and operating
circulars of the Federal Reserve Banks
supersede any inconsistent provision of this
Article to the extent of the inconsistency.
Section 4A-108. Exclusion of Consumer
Transactions Governed by Federal Law
This Article does not apply to a funds
transfer any part of which is governed by the
Electronic Fund Transfer Act of 1978 (Title
XX. Public U w 95-630,92 Stat 3728,15
U.S.C. 1693 et seq.) as amended from time to
time.

18

authorized the order or is otherwise bound by
it under the law of agency.
(b) If a bank and its customer have agreed
that the authenticity of payment orders
issued to the bank in the name of the
customer as sender will be verified pursuant
to a security procedure, a payment order
received by the receiving bank Is effective as
the order of the customer, whether or not
authorized, if (i) the security procedure is a
commercially reasonable method of providing
security against unauthorized payment
orders, and (ii) the bank proves that it
accepted the payment order in good faith and
in compliance with the security procedure
and any written agreement or instruction of
the customer restricting acceptance of
payment orders issued in the name of the
customer. The bank is not required to follow
an instruction that violates a written
agreement with the customer or notice of
which is not received at a time and in a
manner affording the bank a reasonable
opportunity to act on it before the payment
order is accepted.
(c) Commercial reasonableness of a
security procedure is a question of law to be
determined by considering the wishes of the
customer expressed to the bank, the
circumstances of the customer known to the
bank, including the size, type, and frequency
of payment orders normally issued by the
customer to the bank, alternative security
procedures offered to the customer, and
security procedures in general use by
customers and receiving banks similarly
situated. A security procedure is deemed to
be commercially reasonable if (i) the security
procedure was chosen by the customer after
the bank offered, and the customer refused, a
security procedure that was commercially
reasonable for that customer, and (ii) the
customer expressly agreed in writing to be
bound by any payment order, whether or not
authorized, issued in its name and accepted
by the bank in compliance with die security
procedure chosen by the customer.
(d) The term sender in this Article includes
the customer in whose name a payment order
is issued if the order is the authorized order
of the customer under subsection (a), or it is

(

effective as the order of the customer under
Section 4A-205. Erroneous Payment Ordei-s
subsection (b).
(a) If an accepted payment order was
(e)
This section applies to amendments and
transmitted pursuant to a security procedure
cancellations of payment orders to the same for the detection of error ar.d the payment
extent it applies to payment orders.
order (i) erroneously instructed payment to a
(f)
Except as provided in this section and in
beneficiary not intended by the sender, (ii)
section 4A-203(a)(l), rightB and obligations
erroneously instructed payment in an amount
arising under tnis section or section 4A-203
greater than the amount intended by the
may not be varied by agreement
sender, or (iii) was an erroneously
Section 4A-203. Unenforceability of Certain
transmitted duplicate of a payment order
Verified Payment Orders
previously sent by the sender, the following
(a)
If an accepted payment order is not, rules apply:
under section 4A-202[a), an authorized order
(1) If the sender proves that the sender or a
of a customer identified as sender, but is
person acting on behalf of the sender
effective as an order of the customer
pursuant to section 4A-206 complied with the
pursuant to section 4A-202(b), the following
security procedure and that the error would
rales apply:
have been detected if the receiving bank had
(1) By express written agreement, the
also complied, the sender is not obliged to
receiving bank may limit the extent to which pay the order to the extent stated in
it is entitled to enforce or retain payment of
paragraphs (2) and (3).
the payment order.
(2) If the funds transfer is completed on the
(2) The receiving bank is not entitled to
basis of an erroneous payment order
enforce or retain payment of the payment
described in clause (i) or (iii) of subsection
order if the customer proves that the order
(a), the sender is not obliged to pay the order
was not caused, directly or indirectly, by a
and
the receiving bank is entitled to recover
person (i) entrusted at any time with duties to
act for the customer with respect to payment from the beneficiary any amount paid to the
beneficiary to the extent allowed by the law
orders or the security procedure, or (ii) who
governing mistake and restitution.
obtained access to transmitting facilities of
(3) If the funds transfer is completed on the
the customer or who obtained, from a source
basis of a payment order described in clause
controlled by the customer and without
(ii) of subsection (a), the sender is not obliged
authority of the receiving bank, information
facilitating breach of the security procedure, to pay the order to the extent the amount
received by the beneficiary is greater than
regardless of how the information was
the amount intended by the sender. In that
obtained or whether the customer was at
fault. Information includes any access device, case, the receiving bank is entitled to recover
from the beneficiary the excess amount
computer software, or the like.
(b)
This section applies to amendments of received to the extent allowed by the law
payment orders to the same extent it applies governing mistake and restitution.
(b) If (i) the sender of an erroneous
to payment orders.
Section 4A-204. Refund of Payment and Duty payment order described in subsection (a) is
not obliged to pay all or part of the order, and
of Customer To Report with Respect to
(ii) the sender receives notification from the
Unauthorized Payment Order
receiving bank that the order was accepted
(a)
If a receiving bank accepts a payment by the bank or that the sender’s account was
order issued in the name of its customer as
debited with respect to the order, the sender
sender which is (i) not authorized and not
has a duty to exercise ordinary care, on the
effective as the order of the customer under
basis of information available to the sender,
section 4A-202, or (ii) not enforceable. In
whole or in part against the customer under to discover the error with respect to the order
and to advise the bank of the relevant facts
section 4A-203, the bank shall refund any
payment of the payment order received from within a reasonable time, not exceeding 90
days, after the bank's notification was
the customer to the extent the bank is not
received by the sender. If the bank proves
entitled to enforce payment arid shall pay
interest on the refundable amount calculated that the sender failed to perform that duty,
the sender is liable to the bank for the loss
from the date the bank received payment to
the date of the refund. However, the customer the bank proves it incurred as a result of the
is not entitled to interest from the bank on the failure, but the liability of the sender may not
amount to be refunded if the customer fails to exceed the amount of the sender's order.
(c) This section applies to amendments to
exercise ordinary care to determine that the
payment orders to the same extent it applies
order was not authorized by the customer
to payment orders.
and to notify the bank of the relevant facts
within a reasonable time not exceeding 90
Section 4A-2O0. Transmission of Payment
days after the date the customer received
Order Through Funds-Transfer or Other
notification from the bank that the order was Communication System
accepted or that the customer's account was
(a)
If a payment order addressed to a
debited with respect to the order The bank is
receiving bank is transmitted to a fundsnot entitled to any recovery from the
transfer system or other third-party
customer on account of • failure by the
customer to give notification as stated in this communication system for transmittal to the
bank, the system is deemed to be an agent of
section.
the sender for the purpose of transmitting the
fb) Reasonable time under subsection (a)
payment order to the bank. If there is a
may be fixed by agreement as stated in
section 1-204(1), but the obligation o f a
discrepancy between the terms of the
receiving bank to refund payment a s stated in payment order transmitted to the system and
subsection (a) may not otherwise be varied
the terms of the payment order transmitted
by agreement.
by the system to the bank, the terms of the




19

payment order of the sender are those
transmitted by the system. This section dot.;
r.ot apply to a funds-transfer system of the
federal Reserve Banks.
(b)
This section applies to cancellations
,:.nd amendments of payment orders to the
-ame extent it applies to payment orders.
Section iA-207. Misdescription of Beneficiary
(a) Subject to subsection (L), if, in a
payment order received by the beneficiary's
batik, the name, bank account number, or
other identification of the beneficiary refers
to a nonexistent or unidentifiable person or
account, no person has rights as a beneficiary
of the order and acceptance of the order
cannot occur.
(b) If a payment order received by the
beneficiary’s bank identifies the beneficiary
both by name ana by an identifying or bank
account number and the name and number
identify different persons, the follov. ing rules
apply:
(1) Except as otherwise provided in
subsection (c), if the beneficiary's bank does
not know that the name and number refer to
different persons, it may rely on the number
as the proper identification of the beneficiary
of the order. The beneficiary's bank need not
determine whether the name and number
refer to the same person.
(2) If the beneficiary's bank pays the
person identified by name or knows that the
name and number identify different persons,
no person has rights as beneficiary except the
person paid by the beneficiary’s bank if that
person was entitled to receive payment from
the originator of the funds transfer. If no
person has rights as beneficiary, acceptance
of the order cannot occur.
(c) If (i) a payment order described in
subsection (b) is accepted, (ii) the originator's
payment order described tire beneficiary
inconsistently by name and number, and (iii)
the beneficiary’s bank pays the person
identified by number as permitted by
subsection (b)(1), the following rules apply:
(1) If the originator is a bank, the originator
is obliged to pay its order.
(2) If the originator is not a bank and
proves that the person identified by number
was not entitled to receive payment from the
originator, the originator is not obliged to pay
its order unless the originator’s bank proves
that the originator, before acceptance of the
originator’s order, had notice that payment cf
a payment order issued by the originator
might be made by the beneficiary’s bank on
the basis of an identifying or bank account
number even if it identifies a person different
from the named beneficiary. Proof of notice
may be made by any admissible evidence.
The originator’s bank satisfies the burden of
proof if it proves that the originator, before
the payment order was accepted, signed a
writing stating the information to which the
notice relates.
(d) in a case governed by subsection (b)(1),
if the beneficiary’s bank rightfully pays the
person identified by number and that person
was not entitled to receive payment from the
originator, the amount paid may be recovered
from that person to the extent allowed by the
law governing mistake and restitution as
follows:

(11 If the originator is ol ged to pay its
payment order as stated r ubsection (r.), the
originator has the right to locover.
(2) If the originator is not a bank and is not
obliged to pay its payment order, the
originator’s bank has the right to recover.
Section 4A-2Q8. Misdescription of
Intermediary Bank or Beneficiary's Bank
(a) This subsection appbes to a payment
order identifying an intern ediary bank or the
beneficiary's bank only b\ ar. identifying
number.
(1) The receiving bank n ay rely on the
number as the proper idenrificaticm of the
intermediary or beneficiary’s bank and need
not detennine whether the number identifies
a bank.
(2) The sender is obliged to compensate the
receiving bank for any los9 and expenses
incurred by the receiving bank as a result of
its reliance on the number in executing or
attempting to execute the order.
(b) Thi3 subsection applies to a payment
order identifying an intermediary bank or the
beneficiary's bank both by name and an
identifying number if the name and number
identify different persons.
(1) If the sender is a bank, the receiving
bank may rely on the number as the proper
identification of the intermediary or
beneficiary's bank if the receiving bank,
when it executes the sender’s order, does not
know that the name and number identify
different persons. The receiving bank need
not determine whether the name and number
refer to the same person or whether the
cumber refers to a bank. The sender is
obliged to compensate the receiving bank for
any less and expenses incurred by the
receiving bank as a result of its reliance on
the number in executing or attempting to
execute the order.
(21 If the sender is not a bank and the
receiving bank proves that the sender, before
the payment order was accepted, had notice
that the receiving bank might rely on the
number as the proper identification of the
intermediary or beneficiary’9 bank even if it
identifies a person different from the bank
identified by name, die rights and obligations
of the sender and the receiving bank are
governed by subsection (b)(1), as though the
sender were a bank. Proof of notice may be
made by any admissible evidence. The
receiving bank satisfies the burden of proof if
it proves that the sender, before the payment
order was accepted, signed a writing stating
the information to which the notice relates.
(3) Regardless of whether the sender is a
bank, the receiving bank may rely on the
name as the proper identification of the
intermediary or beneficiary’s bank if the
receiving bank, at the time it executes the
sender’s order, does not know that the name
and number identify different persons. The
receiving bank need not determine whether
the name and number refer to the saute
person.
(4) If th e r e c e iv in g b a n k k n o w s dial th e
name and number id e n tif y d if f e r e n t p e r s o n s ,
r e lia n c e o r e i t h e r th e n a m e or th e n u m b e r in
executing th e s e n d e r ’s p a y m e n t o r d e r ie a
breach o f the obligation stated in s e c tio n 4A302(a)(1).




Section 4A-209. Acceptance of Payment
Order
(a) Subject to subsection (d), a receiving
bank other than the beneficiary’s bank
accepts a payment order when it executes the
order.
(b) Subject to subsections (c) and (d). a
beneficiary's bank accepts a payment order
at the earliest of the following times:
(1) When the bank (i) pays the beneficiary
as stated in section 4A-405(a) or 4A-405(b),
or (ii) notifies the beneficiary of receipt of the
order or that the account of the beneficiary
has been credited with respect to the order
unless the notice indicates that the bank is
rejecting the order or that funds with respect
to the order may not be withdrawn or used
until receipt of payment from the sender of
the order;
(2) When the bank receives payment of the
entire amount of the sender’s order pursuant
to section 4A-403(a)(l) or 4A-403(a)(2); or
(3) The opening of the next funds-transfer
business day of the bank following the
payment date of the order if, at that time, the
amount of the sender’s order is fully covered
by a withdrawable credit balance in an
authorized account of the sender or the bank
has otherwise received full payment from the
sender, unless the order was rejected before
that time or is rejected within (i) one hour
after that time, or (ii) one hour after the
epening of the next business day of the
sender following the payment date if that
time is later. If notice of rejection is received
by the sender after the payment date and the
authorized account of the sender does not
bear interest, the bank is obliged to pay
interest to the sender on the amount of the
order for the number of days elapsing after
the payment date to the day the sender
receives notice or leams that the order was
not accepted, counting that day as an elapsed
day. If the withdrawable credit balance
during that period falls below the amount of
the order, the amount cf interest payable ia
reduced accordingly.
(c) Acceptance of a payment order cannot
occur before the order is received by the
receiving bank. Acceptance does not occur
under subsection (b)(2) or (b)(3) if the
beneficiary of the payment order does not
have an account with the receiving bank, the
account has been closed, or the receiving
bank i9 not permitted by law to receive
credits for the beneficiary’s account.
(d) A payment order issued to the
originator’s bank cannot be accepted until the
payment date if the bank is the beneficiary’s
bank, or the execution date if the bank is not
the beneficiary’s bank. If the originator's
bank executes the originator's payment order
before the execution date or pays the
beneficiary of the originator’s payment order
before the payment date and the payment
order is subsequently canceled pursuant to
section 4A-211(b), the bank may recover from
the beneficiary any payment received to the
extent allowed by the law governing mistake
and restitution.
Section 4A-21Q. Rejection of Payment Order
(a) A payment order is rejected by the
receiving bank by a notice of rejection
transmitted to the sender orally,

20

electronically, or in writing. A notice of
rejection need not use any particular words
and is sufficient if it indicates that the
teceiving bank is rejecting the order or will
not execute or pay the order. Rejection is
effective when the notice is given if
transmission is by a means that is reasonable
in the circumstances. If notice of rejection is
given by a means that is not reasonable,
rejection is effective when the notice is
received. If an agreement of the sender and
receiving bank establishes the means to be
used to reject a payment order, (i) any means
complying with the agreement is reasonable
and (ii) any means not complying is not
reasonable unless no significant delay in
receipt of the notice resulted from the use of
the noncomplying means.
(b) This subsection applies if a receiving
bank other than the beneficiary’s bank fails
to execute a payment order despite the
existence on the execution date of a
withdrawable credit balance in an authorized
account of the sender sufficient to cover the
order. If the sender does not receive notice of
rejection of the order on the execution date
and the authorized account of the sender
does not bear interest, the bank is obliged to
pay interest to the sender on the amount of
the order for the number of days elapsing
after the execution date to the earlier of the
day the order is canceled pursuant to section
4A-211(d) or the day the sender receives
notice or leams that the order was not
executed, counting the final day of the period
as an elapsed day. If the withdrawable credit
balance during that period falls below the
amount of the order, the amount of interest is
reduced accordingly.
(c) If a receiving bank suspends payments,

all unaccepted payment orders issued to it
are deemed rejected at the time the bank
suspends payments.
(d) Acceptance of a payment order
precludes a later rejection of the order.
Rejection of a payment order precludes a
later acceptance of the order.
Section 4A-211. Cancellation and
Amendment of Payment Order

(a) A communication of the sender of a
payment order canceling or amending the
order may be transmitted to the receiving
bank orally, electronically, or in writing. If a
security procedure is in effect between the
sender and the receiving bank, the
communication is not effective to cancel or
amend the order unless the communication is
verified pursuant to the security procedure or
the bank agrees to the cancellation or
amendment.
(b) Subject to subsection (a), a
communication by the sender canceling or
amending a payment order is effective to
cancel or amend the order if notice of the
communication is received at a time and in a
manner affording the receiving bank a
reasonable opportunity to act on the
communication before the bank accepts the
payment order.
(c) After a payment order has been
accepted, cancellation or amendment of the
order is not effective unless the receiving
bank agrees or a funds-transfer system rule
allows cancellation or amendment without
agreement of the bank.

(1) With respect to a payment order
ccepted by a receiving bank other than the
beneficiary’s bank, cancellation or
amendment is not effective unless a
conforming cancellation or amendment of the
payment order issued by the receiving bank
is also made,
(2) With respect to a payment order
accepted by the beneficiary's bank,
cancellation or amendment is not effective
unless the order was issued in execution of
an unauthorized payment order, or because
of a mistake by a sender in the funds transfer
which resulted in the issuance of a payment
order (i) that is a duplicate of a payment
order previously issued by the sender, (ii)
that orders payment to a beneficiary not
entitled to receive payment from the
originator, or (iii) that orders payment in an
amount greater than the amount the
beneficiary was entitled to receive from the
originator. If the payment order is canceled or
amended, the beneficiary's bank is entitled to
recover from the beneficiary any amount paid
to the beneficiary to the extent allowed by
the law governing mistake and restitution.
(d) An unaccepted payment order is
canceled by operation of law at the close of
the fifth funds-transfer business day of the
receiving bank after the execution date or
payment date of the order.
(e) A canceled payment order cannot be
accepted. If an accepted payment order is
canceled, the acceptance is nullified and no
person has any right or obligation based on
the acceptance. Amendment of a payment
order is deemed to be cancellation of the
original order at the time of amendment and
issue of a new payment order in the amended
form at the same time.
(f) Unless otherwise provided in an
agreement of the parties or in a fundstransfer system rule, if the receiving bank,
after accepting a payment order, agrees to
cancellation or amendment of the order by
the sender or is bound by a funds-transfer
system rule allowing cancellation or
amendment without the bank’s agreement,
the sender, whether or not cancellation or
amendment is effective, is liable to the bank
for any loss and expenses, including
reasonable attorney's fees, incurred by the
oank as a result of the cancellation or
amendment or attempted cancellation or
amendment.
(g) A payment order is not revoked by the
ieath or legal incapacity of the sender unless
:he receiving bank knows of the death or of
an adjudication of incapacity by a court of
:ompetent jurisdiction and has reasonable
ipportunity to act before acceptance of the
irder.
(h) A funds-transfer system rule is not
sffective to the extent it conflicts with
mbsection (c)(2).
Section 4A-212. Liability and Duty of
deceiving Bank Regarding Unaccepted
5ayment Order
If a receiving bank fails to accept a
layment order that it is obliged by express
igreement to accept the bank is liable for
)reach of the agreement to the extent
>rovided in the agreement or in this Article,
)ut does not otherwise have any duty to
iccept a payment order or, before
icceptance, to take any action, or refrain




from taking action, with respect to the order
except as provided in this Article or by
express agreement. Liability based on
acceptance arises only when acceptance
occurs as stated in section 4A-209, and
liability is limited to that provided in this
Article. A receiving bank is not the agent of
the sender or beneficiary of the payment
order it accepts, or of ar.y other party to the
funds transfer, and the bank owes no duty to
any party to the funds transfer except as
provided in this Article or by express
agreement.
P art 3—E xecu tion o f S en der's P a ym en t O rd er
b y R eceivin g Bank

Section 4A-301. Execution and Execution
Date
(a) A payment order is "executed" by the
receiving bank when it issues a payment
order intended to carry out the payment
order received by the bank. A payment order
received by the beneficiary's bank can be
accepted but cannot be executed.
(b) E xecu tion d a te of a payment order
means the day on which the receiving bank
may properly issue a payment order in
execution of the sender’s order. The
execution date may be determined by
instruction of the sender but cannot be earlier
than the day the order is received and, unless
otherwise determined, is the day the order is
received. If the sender’s instruction states a
payment date, the execution date is the
payment date or an earlier date on which
execution is reasonably necessary to allow
payment to the beneficiary on the payment
date.
Section 4A-302. Obligations of Receiving
Bank in Execution of Payment Order
(a) Except as provided in subsections (b)
through (d), if the receiving bank accepts a
payment order pursuant to section 4A-209(a),
the bank has the following obligations in
executing the order
(1) The receiving bank is obliged to issue,
on the execution date, a payment order
complying with the sender's order and to
follow the sender’s instructions concerning (i)
any intermediary bank or funds-transfer
system to be used in carrying out the funds
transfer, or (ii) the means by which payment
orders are to be transmitted in the funds
transfer. If the originator’s bank issues a
payment order to an intermediary bank, the
originator's bank is obliged to instruct the
intermediary bank according to the
instruction of the originator. An intermediary
bank in the funds transfer is similarly bound
by an instruction given to it by the sender of
the payment order it accepts.

(2) If the sender’s instruction states that the
funds transfer is to be carried out
telephonically or by wire transfer or
otherwise indicates that the funds transfer is
to be carried out by the most expeditious
means, the receiving bank is obliged to
transmit its payment order by the most
expeditious available means, and to instruct
any intermediary bank accordingly. If a
sender's instruction states a payment date,
the receiving bank is obliged to transmit its
payment order at a time and by means
reasonably necessary to allow payment to

21

'he beneficiary on the payment date or as
soon thereafter as is feasible.
(b) Unless otherwise instructed, a receiving
bank executing a payment order may (i) use
any funds-transfer system if use of that
system is reasonable in the circumstances,
end (ii) issue a payment order to the
beneficiary's bank or to an intermediary bank
through which a payment order conforming to
the sender's order can expeditiously be
issued to the beneficiary’s bank if the
receiving bank exercises ordinary care in the
selection of the intermediary bank. A
receiving bank is not required to follow an
instruction of the sender designating a fundstransfer system to be used in carrying out the
iunds transfer if the receiving bank, in good
faith, determines that it is not feasible to
follow the instruction or that following the
instruction would unduly delay completion of
the funds transfer.
(c) Unless subsection (a)(2) applies or the
receiving bank is otherwise instructed, the
bank may execute a payment order by
transmitting its payment order by first class
mail or by any means reasonable in the
circumstances. If the receiving bank is
instructed to execute the sender’s order by
transmitting its payment order by the means
stated or by any means as expeditious as the
means stated.
(d) Unless instructed by the sendar, (i) the
receiving bank may not obtain payment cf its
charges for services and expenses in
connection with the execution of the sender’s
order by issuing a payment order in an
amount equal to the amount of the sender’s
order less the amount of the charges, and (if)
may not instruct a subsequent receiving bank
to obtain payment of its charges in the same
manner.
Section 4A-303. Erroneous Execution of
Payment Order
(a) A receiving bank that (i) executes the
payment order of die sender by issuing a
payment order In mi amount greater than the
amount of the sender's order, or (ii) issues a
payment order in execution of the sender’s
order and then issues a duplicate order, is
entitled to payment of the amount of the
sender's order under section 4A-402(c) if that
subsection is otherwise satisfied. The bank is
entiiied to recover from the beneficiary of the
erroneous order the excess payment received
to the extent allowed by the law governing
mistake and restitution.
fb) A receiving bank that executes the
payment order of the sender by issuing a
payment order in an amount less than the
amount cf the sender’s order is entitled to
payment of the amount of the sender’s order
under section 4A-4G2(c) if (i) that subsection
is otherwise satisfied and (ii) the bank
corrects its mistake by issuing an additional
payment order for the benefit of the
beneficiary of the sender's order. If the error
is not corrected, the issuer of the erroneous
order is entitled to receive or retain payment
from tlie sender of the order it accepted only
to the extent of the amount of the erroneous
order. This subsection does not apply if the
receiving bank executes the sender’s
payment order by issuing a payment order in
an amount less than the amount of the
sender's order for the purpose of obtaining
payment of its charges for services and

expenses pursuant to instruction of the
sender.
(c) if a receiving bank executes the
payment order of the sender by issuing a
payment order to a beneficiary different from
the beneficiary of the sender s order and the
funds transfer is completed on the basis of
that error, the sender of the payment order
that was erroneously executed and all
previous senders in the funds transfer are not
obliged to pay the payment orders they
issued. The issuer of the erroneous order is
entitled to recover from the beneficiary of the
order the payment received to the extent
allowed by the law governing mistake and
restitution.
Section 4A-304. Duty of Sender to Report
Erroneously Executed Payment Order
If the sender of a payment order that is
erroneously executed as stated in section 4A303 receives notification from the receiving
bank that the order was executed or that the
sender’s account was debited with respect to
the order, the sender has a duty to exercise
ordinary care to determine, on the basis of
information available to the sender, that the
order was erroneously executed and to notify
the bank of the relevant facts within a
reasonable time not exceeding 90 days after
the notification from the bank was received
by the sender. If the sender fails to perform
that duty, the bank is not obliged to pay
interest on any amount refundable to the
sender under section 4A-402(d) for the period
before the bank learns of the execution error.
The bank is not entitled to any recovery from
the sender on account of a failure by the
sender to perform the duty stated in this
section.
Section 4A-305. Liability for Late or Improper
Execution or Failure To Execute Payment
Order
(a) If a funds transfer is completed but
execution of a payment order by the
receiving bank in breach of section 4A-3G2
results in delay in payment to the beneficiary,
the bank is obliged to pay interest to either
the originator or the beneficiary of the funds
transfer for the period of delay caused by the
improper execution. Except as provided in
subsection (c), additional damages are not
recoverable.
(b) If execution of a payment order by a
receiving bank in breach of section 4A-302
results in (i) nancompletion of the funds
transfer, (iij failure to us« an intermediary
bank designated by the originator, or (iii)
issuance of a payment order that does not
comply with the terms of the payment order
of the originator, the bank is liable to the
originator for its expenses in the fundi
transfer and for incidental expenses and
interest losses, to the extent not covered by
subsection (a), resulting from the improper
execution. Except as provided in subsection
(c), additional damages are not recoverable.
(cj In addition to the amounts payable
under subsections (a) and (b), damages,
including consequential damages, are
recoverable to the extent provided in an
express written agreement of the receiving
bank.
(d) If a receiving bank fails to execute a
payment order it was obliged by express
agreement to execute, the receiving bank is




liable to the sender for its expenses in the
transaction and for incidental expenses and

interest losses resulting from the failure to
execute. Additional damages, including
consequential damages, are recoverable to
the extent provided in an express written
agreement of the receiving bank, but are not
otherwise recoverable.
(e) Reasonable attorney’s fees are
recoverable if demand for compensation
under subsection (a) or (b) is made and
refused before an action is brought on the
claim. If a claim is made for breach cf an
agreement under subsection (d) and the
agreement docs not provide for damages,
reasonable attorney’s fees are recoverable if
demand for compensation under subsection
(d) is made and refused before an action is
brought on the claim.
(f) Except as seated in this section, the
liability of a receiving bank under
subsections (a) and (b) mey not be varied by
agreement.

Part 4— Payment
Section 4A-401. Payment Date
Fayment date of a payment order means
the day on which the amount of the order is
payable to the beneficiary by the
beneficiary’s bank. The payment date may be
determined by instruction of the sender but
cannot be earlier than the day the order is
received by the beneficiary’s bank and,
unless otherwise determined, is the day the
order is received by the beneficiary's bank.
Section 4A—402. Obligation of Sender To Pay
Receiving Bank
(a) This section is subject to sections 4A205 and 4A-207.
(b) With respect to a payment order issued
to the beneficiary’s bank, acceptance of the
order by the bank ohliges the sender to pay
the bank the amount of the order, bat
payment is not dire until the payment date of
the order.
(c) This subsection is subject to subsection
(e) and to section 4A-3G3. With respect to a
payment order issued to a receiving bank
other than the beneficiary’s beak, acceptance
of the order by the receiving bank obliges the
sender to pay the bank the amount of the
sender’s order. Payment by the sender is not
due until the execution date «f the sender’s
order. The obligation of that sender to pay its
payment order is excused if the fundB
transfer is not completed by acceptance by
the beneficiary's bank of a payment order
instructing payment to the beneficiary of that
sender’s payment order.
(d) If the sender of a payment order pays
the order and was not obliged to pay all or
part of the amount paid, the bank receiving
payment is obliged to refund payment to the
extent the sender was net obliged to pay.
Except as provided in sections 4A-294 and
4A-TO4, interest is payable on the refundable
amount from the date of payment.
(e) If a funds transfer is not completed as
stated in subsection fc) and an intermediary
bank is obliged to refund payment as stated
in subsection (d) but is unable to do so
because not permitted by applicable law or
because die bank suspends payments, a
sender in the funds transfer that executed a

22

payment order in compliance with an
instruction, as stated in section 4A-302(a](l
to route the funds transfer through that
intermediary bank is entitled to receive or
retain payment from the sender of the
payment order that it accepted. The first
sender in the funds transfer that issued an
instruction requiring routing through that
intermediary bank is subrogated to the right
of the bank that paid the intermediary bank
to refund as stated in subsection (d).
(f)
The right of the sender of a payment
order to be excused from the obligation to
pay the order as stated in subsection (c) or to
receive refund under subsection (d) may not
be varied by agreement.
Section 4A-403. Payment by Sender To
Receiving Bank
(a) Payment of the sender's obligation
under section 4A-402 to pay the receiving
bank occurs as follows:
(1) If the sender is a bank, payment occurs
when the receiving bank receives final
settlement of the obligation through a Federal
Reserve Bank or through a funds-transfer
system.
( 2) If the sender is a bank and the sender (i’
credited an account of the receiving bank
with the sender, or (ii) caused an account of
the receiving bank in another bank to be
credited, payment occurs when the credit is
withdrawn or, if not withdrawn, at midnight
of the day on which the credit is
withdrawable and the receiving bank learns
of that fact
(3) If the receiving bank debits an account
of the sender with the receiving bank,
payment occurs when the debit is made to
the extent the debit is covered by a
withdrawable credit balance in die account.
(b) If the sender and receiving bank are
members of a funds-transfer system that nets
obligations multilaterally among participants
the receiving bank receives final settlement
when settlement is complete in accordance
with the rules of the system. The obligation o
the sender to pay the amount of a payment
order transmitted through the funds-transfer
system may be satisfied, to the extent
permitted by the rules of the system, by
setting off and applying against the sender’s
obligation the right of the sender to receive
payment from the receiving bank of the
amount of any other payment order
transmitted to the sender by the receiving
bank through the funds-transfer system. The
aggregate balance of obligations owed by
each sender to each receiving bank in the
funds-transfer system may be satisfied, to thi
extent permitted by the rules of the system,
by setting off and applying against that
balance the aggregate balance of obligations
owed to the sender by other members of the
system. The aggregate balance is determined
after the right of setoff stated in the second
sentence of this subsection has been
exercised.
(c) If two banks transmit payment orders t
each other under an agreement that
settlement of the obligations of each bank to
the ether under section 4A-402 will be made
at the end of the day or other period, the tots
amount owed with respect to all orders
transmitted by one bank shall be set off
against the total amount owed with respect 1
all orders transmitted by the other bank. To

(b) If the beneficiary's bank does not credit
the extent of the setoff, each bank has made
payment to the other.
an account of the beneficiary of a payment
(d)
In a case not covered by subsection (a),
order, the time when payment of the bank’s
the time when payment of the sender's
obligation under section 4A-404(a) occurs is
obligation under section 4A-402(b) or 4Agoverned by principles of law that determine
402(c) occurs is governed by applicable
when an obligation is satisfied.
principles of law that determine when an
(c) Except as stated in subsections fd) and
obligation is satisfied.
(e), if the beneficiary’s bank pays the
beneficiary of a payment order under a
Section 4A-404. Obligation of Beneficiary's
Bank To Pay and Give Notice to Beneficiary condition to payment or agreement of the
beneficiary giving the bank the right to
(a) Subject to sections 4A-211(e), 4A405(d), and 4A-4C5(e), if a beneficiary's bank recover payment from the beneficiary if the
accepts a payment order, the bank is obliged bank does not receive payment of the order,
the condition to payment or agreement is not
to pay the amount of the order to the
enforceable.
beneficiary of the order. Payment is due on
(d) A funds-transfer system rule may
the payment date of the order, but if
acceptance occurs on the payment date after provide that payments made to beneficiaries
of funds transfer made through the system
the close of the funds-transfer business day
are provisional until receipt of payment by
of the bank, payment is due on the next
the beneficiary's bank of the payment order it
funds-transfer business day. If the bank
accepted. A beneficiary’s bank that makes a
refuses to pay after demand by the
beneficiary and receipt of notice of particular payment that is provisional under the rule is
entitled to refund from the beneficiary if (i)
circumstances that will give rise to
the rule requires that both the beneficiary
consequential damages as a result of
and the originator be given notice of the
nonpayment, the beneficiary may recover
damages resulting from the refusal to pay to provisional nature of the payment before the
funds transfer is initiated, (ii) the beneficiary,
the extent the bank had notice of the
the beneficiary’s bank and the originator’s
damages, unless the bank proves that it did
bank agreed to be bound by the rule, and (iii)
not pay because of a reasonable doubt
the beneficiary's bank did not receive
concerning the right of the beneficiary to
payment of the payment order that it
payment.
accepted. If the beneficiary is obliged to
(b) If a payment order accepted by the
refund payment to the beneficiary’s bank,
beneficiary’s bank instructs payment to an
acceptance of the payment order by the
account of the beneficiary, the bank is
obliged to notify the beneficiary of receipt of beneficiary’s bank is nullified and no
the order before midnight of the next funds- payment by the originator of the funds
transfer business day following the payment transfer to the beneficiary occurs under
section 4A-406.
date. If the payment order does not instruct
(e) This subsection applies to a funds
payment to an account of the beneficiary, the
bank is required to notify the beneficiary only transfer that includes a payment order
if notice is required by the order. Notice may transmitted over a funds-transfer system that
(i) nets obligations-multilaterally among
be given by first class mail or any other
means reasonable in the circumstances. If the participants, and (ii) has in effect a losssharing agreement among participants for the
bank fails to give the required notice, the
purpose of providing funds necessary to
bank is obliged to pay interest to the
complete settlement of the obligations of one
beneficiary on the amount of the payment
or more participants that do not meet their
order from the day notice should have been
given until the day the beneficiary learned of settlement obligations. If the beneficiary’s
receipt of the payment order by the bank. No bank in the funds transfer accepts a payment
other damages are recoverable. Reasonable order and the system fails to complete
settlement pursuant to its rules with respect
attorney's fees are also recoverable if
to any payment order in the funds transfer, (i)
demand for interest is made and refused
the acceptance by the beneficiary’s bank is
before an action is brought on the claim.
nullified and no person has any right or
(c) The right of a beneficiary to receive
obligation based on the acceptance, (ii) the
payment and damages as stated in
beneficiary's bank is entitled to recover
subsection (a) may not be varied by
payment from the beneficiary, (iii) no
agreement or a funds-transfer system rule.
payment by the originator to the beneficiary
The right of a beneficiary to be notified as
occurs under section 4A-406, and (iv) subject
stated in subsection (b) may be varied by
to section 4A-402(e), each sender in the funds
agreement of the beneficiary or by a fundstransfer is excused from its obligation to pay
transfer system rule if the beneficiary is
its payment order under section 4A-402(c)
notified of the rule before initiation of the
because the funds transfer has not been
funds transfer.
completed.
Section 4A-405. Payment by Beneficiary’s
Section 4A-4O0. Payment by Originator to
Bank To Beneficiary
Beneficiary; Discharge of Underlying
(a) If the beneficiary's bank credits an
Obligation
account of the beneficiary of a payment
order, payment of the bank’s obligation under (a) Subject to sections 4A-211(e), 4A405(d), and 4A-405(e), the originator of a
section 4A-404(a) occurs when and to the
funds transfer pays the beneficiary of the
extent (i) the beneficiary is notified of the
originator’s payment order (i) at the time a
right to withdraw the credit, (ii) the bank
payment order for the benefit of the
lawfully applies the credit to a debt of the
beneficiary, or (iii) funds with respect to the beneficiary is accepted by the beneficiary’s
bank in the funds transfer and (ii) in an
order are otherwise made available to the
amount equal to the amount of the order
beneficiary by the bank.




23

accepted by the beneficiary’s bank, but not
more than the amount of the originator’s
order.
(b) If payment under subsection (a) is marie
to satisfy an obligation, the obligation is
discharged to the same extent discharge
would result from payment to the beneficiary
of the same amount in money, unless (i) the
payment under subsection (a) was made by a
means prohibited by the contract of the
beneficiary with respect to the obligation, (ii)
the beneficiary, within a reasonable time
after receiving notice of receipt of the order
by the beneficiary's bank, notified the
originator of the beneficiary's refusal of the
payment, (iii) funds with respect to the order
were not withdrawn by the beneficiary or
applied to a debt of the beneficiary, and (iv)
the beneficiary would suffer a loss that could
reasonably have been avoided if payment
had been made by a means complying with
the contract. If payment by the originator
does not result in discharge under this
section, the originator is subrogated to the
rights of the beneficiary to receive payment
from the beneficiary's bank under section
4A-404(a).
(c) For the purpose of determining whether
discharge of an obligation occurs under
subsection (b), if the beneficiary's bank
accepts a payment order in an amount equal
to the amount of the originator’s payment
order less charges of one or more receiving
banks in the funds transfer, payment to the
beneficiary is deemed to be in the amount of
the originator’s order unless upon demand by
the beneficiary the originator does not pay
the beneficiary the amount of the deducted
charges.
(d) Rights of the originator or of the
beneficiary of a funds transfer under this
section may be varied only by agreement of
the originator and the beneficiary.
P a rt 5—M isc e lla n e o u s P ro visio n s

Section 4A-501. Variation by Agreement and
Effect of Funds-Transfer System Rule
(a) Except as otherwise provided in this
Article, the rights and obligations of a party
to a funds transfer may be varied by
agreement of the affected party.
(b) F u n ds-tran sfer s y s te m ru le means a rule
of an association of banks (i) governing
transmission of payment orders by means of
a funds-transfer system of the association or
rights and obligations with respect to those
orders, or (ii) to the extent the rule governs
rights and obligations between banks that are
parties to a funds transfer in which a Federal
Reserve Bank, acting as an intermediary
bank, sends a payment order to the
beneficiary’s bank. Except as otherwise
provided in this Article, a funds-transfer
system rule governing rights and obligations
between participating banks using the system
may be effective even if the rule conflicts
with this Article and indirectly affects
another party to the funds transfer who does
not consent to the rule. A funds-transfer
system rule may also govern rights and
obligations of parties other than participating
banks using the system to the extent stated in
sections 4A-404(c), 4A-405(d). and 4A-507(c).

Section 4A-502. Creditor Process Served on
Receiving Bank; Setoff by Beneficiary’s Bank
(a) As used in this section, c re d ito r p ro c e ss
means levy, attachment, garnishment, notice
of lien, sequestration, or similar process
issued by or on behalf of a creditor or other
claimant with respect to an account.
(b) This subsection applies to creditor
process with respect to an authorized
account of the sender of a payment order if
the creditor process is served on the receiving
bank. For the purpose of determining rights
with respect to the creditor process, if the
receiving bank accepts the payment order the
balance in the authorized account is deemed
to be reduced by the amount of the payment
order to the extent the bank did not
otherwise receive payment of the order,
unless the creditor process is served at a time
and in a manner affording the bank a
reasonable opportunity to act on it before the
bank accepts the payment order.
(c) If a beneficiary’s bank has received a
payment order for payment to the
beneficiary's account in the bank, the
following rules apply:
(1) The bank may credit the beneficiary’s
account. The amount credited may be set off
against an obligation owed by the beneficiary
to the bank or may be applied to satisfy
creditor process served on the bank with
respect to the account.
(2) The bank may credit the beneficiary’s
account and allow withdrawal of the amount
credited unless creditor process with respect
to the account is served at a time and in a
maimer affording the bank a reasonable
opportunity to act to prevent withdrawal.
(33 If creditor process with respect to the
beneficiary’s account has been served and
the bank has had a reasonable opportunity to
act on it, the bank may not reject the
payment order except for a reason unrelated
to the service of process.
(d) Creditor process with respect to a
payment by the originator to the beneficiary
pursuant to a funds transfer may be served
only on the beneficiary's bank with respect to
the debt owned by that bank to the
beneficiary. Any other bank served with the
creditor process is not obliged to act with
respect to the process.
Section 4A-503. Injunction or Restraining
Order with Respect to Funds Transfer
For proper cause and in compliance with
applicable law, a court may restrain (i) a
person from issuing a payment order to
initiate a funds transfer, (ii) an originator’s
bank from executing the payment order of the
originator, or (iii) the beneficiary’s bank from
releasing funds to the beneficiary or the
beneficiary from withdrawing the funds. A
court may not otherwise restrain a person
from issuing a payment order, paying or
receiving payment of a payment order, or
otherwise acting with respect to a funds
transfer.
Section 4A-504. Order In Which Items and




(1) The rights and obligations between the
Paym ent O rders M ay Be Charged to Account;
sender of a payment order and the receiving
O rder of W ithdraw als from Account
bank are governed by the law of the
(a) If a receiving bank has received more
than one payment order of the sender or one
or more payment orders and other items that
are payable from the sender’s account, the
bank may charge the sender's account with
respect to the various orders and items in any
sequence.
(b) In determining whether a credit to an
account has been withdrawn by the holder of
the account or applied to a debt of the holder
of the account, credits first made to the
account are first withdrawn or applied.
Section 4A-505. Preclusion of Objection to
Debit of Customer's Account
If a receiving bank has received payment
from its customer with respect to a payment
order issued in the name of the customer as
sender and accepted by the bank, and the
customer received notification reasonably
identifying the order, the customer is
precluded from asserting that the bank is not
entitled to retain the payment unless the
customer notifies the bank of the customer’s
objection to the payment within one year
after the notification was received by the
customer.
Section 4A-508. Rate of Interest
(a) If, under this Article, a receiving bank is
obliged to pay interest with respect to a
payment order issued to the bank, the amount
payable may be determined (i) by agreement
of the sender and receiving bank, or (ii) by a
funds-transfer system rule if the payment
order is transmitted through a funds-transfer
system.
(b) If the amount of interest is not
determined by an agreement or rule as stated
in subsection (a), the amount is calculated by
multiplying the applicable Federal Funds rate
by the amount on which interest is payable,
and then multiplying the product by the
number of days for which interest is payable.
The applicable Federal Funds rate is the
average of the Federal Funds rates published
by the Federal Reserve Bank of New York for
each of the days for which interest is payable
divided by 360. The Federal Funds rate for
any day on which a published rate is not
available is the same as the published rate
for the next preceding day for which there is
a published rate. If a receiving bank that
accepted a payment order is required to
refund payment to the sender of the order
because the funds transfer was not
completed, but the failure to complete was
not due to any fault by the bank, the interest
payable is reduced by a percentage equal to
the reserve requirement on deposits of the
receiving bank.
Section 4A-507. Choice of Law
(a) The following rules apply unless the
affected parties otherwise agree or
subsection (c) applies:

24

jurisdiction in which tha receiving bank is
located.
(2) The rights and obligations between the
beneficiary’s bank and the beneficiary are
governed by the law of the jurisdiction in
which the beneficiary’s bank is located.
(3) The issue of when payment is made
pursuant to a funds transfer by the originator
to the beneficiary is governed by the law of
the jurisdiction in which the beneficiary's
bank is located.
(b) If the parties described in each
paragraph of subsection (a) have made an
agreement selecting the law of a particular
jurisdiction to govern rights and obligations
between each ether, the law of that
jurisdiction governs those rights and
obligations, whether or not the payment order
or the funds transfer bears a reasonable
relation to that jurisdiction.
(c) A funds-transfer system rale may select
the law of a particular jurisdiction to govern
(i) rights and obligations between
participating banks with respect to payment
orders transmitted or processed through the
system, or (ii) the rights and obligations of
some or all parties to a funds transfer any
part of which is carried out by means of the
system. A choice of law made pursuant to
clause (i) is binding on participating banks. A
choice of law made pursuant to clause (ii) is
binding on the originator, other sender, or a
receiving bank having notice that the fundstransfer system might be used in the funds
transfer and of the choice of law by the
system when the originator, other sender, or
receiving bank issued or accepted a payment
order. The beneficiary of a funds transfer is
bound by the choice of law if, when the funds
transfer is initiated, the beneficiary has
notice that the funds-transfer system might
be used in the funds transfer and of the
choice of law by the system. The law of a
jurisdiction selected pursuant to this
subsection may govern, whether or not that
law bears a reasonable relation to the matter
in issue.
(d) In the event of inconsistency between
an agreement under subsection (b) and a
choice-of-law rule under subsection (c), the
agreement under subsection (b) prevails.
(e) If a funds transfer is made by use of
more than one funds-transfer system and
there is inconsistency between choice-of-law
rules of the systems, the matter in issue is
governed by the iaw of die selected
jurisdiction that has the most significant
relationship to the matter in issue.
By order of the Board of Governors of the
Federal Reserve System, September 28,1990.
William W. Wiles,
S e c r e ta r y of the Board.

[FR Doc. 23461 Filed 10-4-90: 8:45 am]
BUXiMO CODE S3KMM-M